Investors flocked to buy new bonds of the eurozone rescue fund on Monday as the improved sentiment around Europe and the single currency helped strengthen demand.

The European Financial Stability Facility sold €1.5bn in 20-year bonds, the first time it had issued debt of this maturity, with order books rising to €4.5bn.

The strong demand meant bankers could price the bond at yields of 3.96 per cent, or 115 basis points over mid-swaps, the European reference point for funding bond issues. This was 5bp lower than initial price guidance.

The healthy interest followz the success of other long-dated transactions from public sector issuers. Last week, Belgium sold a €4bn 20-year syndicated issue that attracted €6.4bn of demand from accounts across Europe.

The strong demand is in contrast to previous EFSF bonds, which had struggled because of worries over the health of the eurozone.

It is also impressive as it is considered harder to sell longer-maturing bonds. The EFSF had not sold bonds beyond 10 years in maturity before this transaction. The money is to be used for the bail-out of Ireland and Portugal.

Bankers involved in the transaction said there was interest from funds and banks across Europe, with a small amount of demand from Asian funds.

“This has been easy to sell. It is so different to the end of last year. Everyone is happy to buy this debt,” one banker on the deal said. “There has been such a sea-change of opinion in Europe since the European Central Bank’s emergency loan injections [longer-term refinancing operations].”

Another banker said: “Nobody thinks the eurozone crisis is necessarily over, but few people think the eurozone will break up, which makes this debt seem pretty safe to most investors.”

The 20-year bond, which matures in March 2032, priced with a coupon of 3.87 per cent, an issue price of 99.89 per cent of par and a yield of 3.96 per cent.

The EFSF mandated BNP Paribas, Commerzbank and DZ Bank. It had been contemplating a 30-year deal but settled for the slightly shorter maturity.

The lead managers went out with guidance in the 120bp area over mid-swaps, which would have given a coupon of about 4 per cent, a yield which is a key target for insurance companies who tend to be big buyers of long-dated issues.

It is the second bond deal of the year from the rescue fund, which successfully sold €1.5bn of debt in January despite being downgraded from its top-notch triple A credit status in that month.

However, the first deal was for six-month bills, which are considered much easier to sell. The EFSF had been downgraded one notch to AA+ by Standard & Poor’s only days before.

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