Saturday

3rd Dec 2016

Markets snap up EU bonds for Ireland in first attempt to raise cash

  • Portugal's debt issuance did not meet with the same fortunes as the EU-level bonds (Photo: 1suisse)

Investors have snapped up the first set of bonds issued by the European Union in its efforts to raise cash as part of an €85 billion bail-out of debt-encumbered member state Ireland.

A €5 billion, five-year issuance sold out in one hour on Wednesday (5 January), according to the European Commission, which was pleased to see that demand had been three times what was being offered.

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The sums were raised under the rubric of the European Financial Stablisation Mechanism (EFSM), guaranteed by the EU budget. The EFSM is to deliver €22.5 billion to Ireland as part of the broader €85 billion aid package.

The larger €440 billion-strong European Financial Stability Facility is to put up its first bonds for sale later this month, a move that will also raise cash for the embattled island.

The interest rate demanded for the sums was 2.59 percent. The rate the EU will lend the funds on to Ireland however will be 5.51 percent, with the difference to be invested back into the EU budget.

While the EU-level bonds sold out within minutes, a debt issuance by Portugal met with different fortunes.

Lisbon's debt auction of €500 million in six-month treasury bills saw the yield climb to a record 3.686 percent, up from 2.045 percent in its last such sale.

In related news, China's vice premier, Li Keqiang, announced during a visit to Madrid, that the Middle Kingdom is to purchase €6 billion in Spanish debt.

He said the country would be "a responsible, long-term investor" that will be with Spain "in both the joys and the sorrows."

Both Portugal and Spain are next on the hitlist of the 'bond vigilantes' demanding high interest rates on government debt from eurozone states after Ireland was forced to accept a bail-out.

Analysis

Doubts hang over EU investment plan's future

Questions of value for money and a lack of transparency complicate adding almost €200 billion more and extending the Juncker investment plan to 2020.

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