(Adds final book and spread, relative value)
By John Geddie
LONDON, April 9 (IFR) - Orders have topped EUR12.5bn for the European Financial Stability Facility's new five-year euro benchmark, said lead banks on Tuesday.
The euro rescue fund, rated Aa1/AA+/AAA, has set the final spread at mid-swaps plus 9bp, while brokers are already offering the bonds 6 cents higher in the grey market.
"It's got a bit out of control," said one market source close to the deal, adding that the EFSF will likely print a deal in the EUR6bn to EUR7bn range.
That could substantially reduce the fund's second quarter funding target of EUR16.5bn, and make a significant dent into its EUR58bn full-year funding target.
When books opened on Tuesday morning, official guidance was set at mid-swaps plus 10-12bp, after interest topped EUR4bn at initial thoughts of mid-swaps plus 12bp area released on Monday.
Later on Tuesday morning, leads confirmed that orders on the bond, which remains part-guaranteed by bailed-out Cyprus, had reached EUR7bn.
Banks away from the deal, however, said the fact that orders had been allowed to get to these levels showed that the deal was coming too cheaply.
One banker added the EFSF was offering a 7bp new issue premium on the new bond versus where its outstanding bonds were trading on announcement of the new deal.
Another syndicate official added that the performance of semi-core eurozone sovereigns like France has made EFSF bonds particularly attractive, offering a yield pick up of around 30bp.
The euro rescue fund said in an emailed statement on Monday that it has received a request from Cyprus to step out as a guarantor, but added that this required the approval of the remaining guarantors, who are not set to meet until April 25.
If Cyprus drops out, the new bond, like all EFSF's outstanding bonds, will not be able to be upsized as the credit structure will have changed.
This could be another reason why the EFSF has opted to issue in size, said the bankers, in order to assuage investor concerns that there will be no potential for further liquidity in the bond.
BNP Paribas, Goldman Sachs International and HSBC are bookrunners on the transaction.
The EFSF has raised EUR17bn in the year to date, via three-, five- and seven-year benchmark issues and taps of three-, 10- and 25-year bonds. (Reporting by John Geddie; editing by Julian Baker)