EFSF did not buy own bonds, but Moody's still unimpressed
By Benjamin Chiou
Mon 14 Nov 2011
LONDON (SHARECAST) - The European Financial Stability Facility (EFSF) has denied reports in the Sunday Telegraph that it bought its own bonds in a 10-year bond sale last week.
The paper claimed yesterday that the sale was undersubscribed and so had to step in to raise €3bn.
“Sources said the EFSF had spent more than € 100m buying up its own bonds to help it achieve its funding target after the banks leading the deal were only able to find about €2.7bn of outside demand for the debt,” the Telegraph writes.
However, according to Reuters, an EFSF spokesman responded by saying: “The EFSF did not buy its own bonds and the book was 3 billion euros.”
Nevertheless, ratings agency Moody’s released a damning report today saying that the pricing of the auction and the lack of progress in leveraging its lending capacity showed the “limits of the EFSF’s ability to support European government bond markets.”
Last week's bond issuance priced at 177 basis points (bps) over 10-year German bunds, higher than the 51bp spread seen in a similar auction in June - "The rise in EFSF spreads is an important signal because it reflects a rise relative to the spreads of its Aaa-rated guarantors," Moody's said.
“With its current lending capacity (which is at about €266 billion considering commitments to Ireland, Portugal and Greece), the EFSF cannot meaningfully support the euro area’s large government bond markets. This limits the EFSF’s role as an important pillar of the euro area crisis management strategy.”