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April 9, 2013 6:35 pm
Europe’s bailout fund has raised €8bn in the biggest bond sale by a supranational organisation on record, following a eurozone government bond rally fuelled by expectation of a wave of Japanese investment.
The European Financial Stability Facility’s five-year deal priced at a yield of 0.956 per cent and attracted orders of more than €14bn from close to 200 separate investors, primarily based in the eurozone and Asia.
“We thought it would go well, but not this well,” said Jamie Stirling, co-head of sovereign, supranational and agency debt markets at BNP Paribas, which worked on the deal. “It’s big, even by the standards of our world.”
European government bond markets have been lifted by the Bank of Japan’s plans to ease monetary policy aggressively and buy huge amounts of long-dated Japanese government bonds. Falling bond yields in Japan are expected to spur local investors into highly rated but better-returning overseas markets such as Europe.
EFSF debt appeals to Japanese investors, who are generally considered conservative and risk-averse, according to Erik Nielsen, chief economist at UniCredit.
“The EFSF is generally something they like because it is pan-European and seen as underwritten by Germany,” he said. “But it’s entirely plausible that the eurozone could also be seeing ripple effects from Japan’s massive bond-buying programme.”
Asian investors snapped up 29 per cent of the bond sold on Tuesday, compared with just 5 per cent of a €3bn three-year bond sold in late February and 16 per cent of a five-year bond issued at the end of January.
Bankers declined to say how much of the bond sale was bought by Japanese investors. But the latter are expected to be primarily interested in debts with a maturity of seven years or longer. For the EFSF’s most recent seven-year bond – issued in mid-January – Asian investors picked up a third of the deal.
The eurozone’s rescue fund is financing the bailout packages of Greece, Portugal and Ireland, and has already raised €25bn this year. BNP Paribas, Goldman Sachs and HSBC managed Tuesday’s bond sale.
The sale is the largest issued by a supranational group since at least 1995, when Dealogic began compiling figures on the market, and the 20th largest deal of any sovereign, supranational or agency.
Eurozone government bonds gave away some of the recent gains on Tuesday, sending state borrowing costs edging higher, and bankers said Japanese investors had not yet started to buy euro-denominated debt in bulk.
Many fund managers, bankers and analysts expect the BoJ’s extensive policy easing to benefit Europe and other highly rated, liquid bond markets. French and Austrian benchmark bond yields fell to record lows on Monday in expectation of Japanese investment, and other big markets fell close to all-time lows.
The BoJ “has created a sizeable demand shock” to bond markets, Barclays analysts wrote in a note. “We expect a substantial amount of the fixed income demand from Japanese portfolio holders, such as insurance companies and banks, to spill over globally.”
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