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Successful ESM bond auction

January 8, 2013

The eurozone's new permanent bailout fund has successfully started a bond-selling program to secure more resources for potential payouts to crisis-stricken nations. The first auction has attracted strong demand.

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EU Euro Wahrung Logo ESM. http://www.efsf.europa.eu/attachments/fi/esm_investor_presentation.pdf
Image: esm

The permanent rescue fund of the 17-member euro area, technically known as the European Stability Mechanism (ESM) on Tuesday successfully completed its first short-term auction of bills with a three-month maturity.

The auction secured 1.9 billion euros ($2.5 billion) from international investors while attracting strong demand amounting to more than six million euros in bids.

ESM Chief Financial Officer Christophe Frankel said in a statement the result of the sale showed "investors were perfectly comfortable" with the permanent bailout mechanism taking over funding operations from its predecessor, the temporary European Financial Stability Facility (EFSF).

Bad deal for investors?

Investors displayed so much confidence in the issued bonds that they were willing to put up with a negative yield of minus 0.0324 percent.

Also on Tuesday, Japanese Finance Minister Taro Aso announced his country was eager to buy ESM bonds, but did not say when it would start doing so and how much it was planning to buy.

He mentioned Tokyo would tap foreign exchange reserves to pay for the bonds and added it would help Japan's role as one of Europe's major trading partners. "Stabilizing Europe's financial crisis will eventually contribute to the stability of currencies including the yen," Aso commented.

hg/hc (dpa, AFP, Reuters)