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.
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| 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.