THE FIRST €5 billion for Ireland’s €85 billion bailout will be raised today when the European Commission completes its first bond auction under the rescue programme.
Sources in London predict strong investor interest in the sale by the European Financial Stability Mechanism (EFSM), an arm of the commission.
Of crucial interest is the price at which the bond is sold as this will provide an indication of market sentiment towards the Irish rescue scheme.
The sale also stands as a key test of investor sentiment towards the EU-IMF bailout scheme at large, as it is the first under the rescue net for euro members set up last year in the wake of the Greek rescue.
The €5 billion auction is the first in a series of sales by the EFSM and the Luxembourg-based European Financial Stability Facility (EFSF), which borrows money on behalf of euro zone members. Between now and the end of March, Ireland stands to receive some €11.7 billion from the EFSM and the EFSF to help cover the cost of running the State.
The EU-IMF rescue plan for Ireland assumes the Government will be shut out from private bond markets for two years. The overall rate of interest on the loans, in the region of 5.7 per cent, has been heavily criticised by Opposition parties which say it is too high. Both the Government and the commission have rejected this.
The EFSM plans to raise a total of €17.6 billion for Ireland this year and the EFSF plans to raise €16.5 billion. The EFSM will raise up to €4.9 billion for Ireland next year and the EFSF plans to raise up to €10 billion. Subject to market conditions, the EFSF plans to issue its first Irish bond towards the end of this month. In total, the EFSM plans to go the market three times in the first six months of the year and the EFSF plans to complete two sales in the same period.
The commission is expected to issue five-year notes with a maturity date of December 4th, 2015, through the EFSM via a syndicated sale. Both the EFSM and the EFSF have a triple-A credit rating from rating agencies Standard Poor’s, Moody’s and Fitch.
There was no comment from the commission last night on the price at which the €5 billion was being raised. Some sources said, however, that the price would be similar to that for similar European Investment Bank bond issues, around 15 basis points more than the benchmark mid-swap rate.
