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CAPITAL MARKETS

Sovereign debt: EU bailout bonds set for debut issue

Success crucial for sovereign debt markets; Strong investor demand expected

A burgeoning new sub-asset class in the sovereign debt markets will set the tone for European debt markets in 2011 after a tumultuous 2010. And it is acronym rich: the European Financial Stability Mechanism (EFSM), a European Union funding vehicle, kicked off proceedings in early January when it raised €5 billion from the sale of five-year bonds. The European Financial Stability Facility (EFSF) is set to follow with an inaugural €5 billion issue this month.

 €34bln Amount the EFSF and EFSM hope to raise in 2011

Amount the EFSF and EFSM hope to raise in 2011

The funds will be used to finance about half of the €85 billion November bailout of Ireland, and will also be used to provide most of the €750 billion backstop that was put in place when the EFSF was established last May. Combined, the two entities will attempt to raise €34 billion this year and a further €15 billion in 2012. New entity

Although the EFSM isn’t a new issuer – it has been selling debt for a few years to lend on to non-eurozone EU member states such as Hungary, Latvia and Romania – it has been infrequent, with this year’s funding programme dwarfing its outstanding debt.

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