by Richard Barley
Wall Street Journal
January 5, 2011
Strong demand for the first European bond issued to fund Ireland's bailout is a vote of confidence in Europe, but a qualified one. The European Union raised €5 billion ($6.65 billion) of five-year bonds Wednesday under the framework of the €60 billion European Financial Stability Mechanism. But this deal was always likely to go well. Europe will face many more tests this year and other issuance may be trickier.
The EFSM is the most straightforward of Europe's bailout facilities: it is administered by the European Commission, backed by the European Union budget and fully guaranteed by the E.U.'s 27 members, ensuring a cast-iron triple-A rating.
Crucially, the E.U. has issued similar bonds before, funding loans to Hungary, Latvia and Romania. That makes the EFSM an attractive prospect for yield-hungry investors. At a yield of around 2.5%, the bond offers a pick-up of 0.6 percentage points over German Bunds, and even a small yield premium over existing, less liquid E.U. paper.
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