October 6, 2017 / 1:48 PM / a year ago

EFSF plans what could be final issue of the year

LONDON, Oct 6 (IFR) - The European Financial Stability Facility is set to return to the market next week for what bankers expect will be its final trade of the year.

The AA/Aa1/AA rated entity sent a request for proposals to a selection of banks on Wednesday after it opted not to use the last two windows for a syndicated trade, turning to auctions instead.

Bankers said the size of the new issue will likely be around €3bn, leaving the remaining funding requirements to a combination of auctions.

“If the issuer wanted to err on the side of caution it could do as much as possible before the ECB announcement and the ESM dollar issuance, leaving some bits and pieces for the rest of the year,” said a banker.

The EFSF’s scheduled funding target for the fourth quarter is €5.8bn and the ESM’s is €4.5bn.

Many bankers and investors expect that the ECB will announce on October 26 a decision to scale back its bond purchasing programme but they are uncertain in what shape or form that will be, although they are not anticipating surprises.

They said the EFSF could be looking at the medium part of the curve.

“If you look at recent transactions at the five-year part, those went extremely well,” said the banker. “They’ve already issued at the longer end.”

A €4bn five-year for the Republic of Austria attracted more than €11.2bn of demand in mid-September, despite coming at a negative 0.165% yield.

EFSF’s €3.99bn 0% bond due November 2022 is trading at 29bp through mid-swaps, 8bp tighter than where it priced, and Finland’s €4bn 0% due April 2022 is at less 37bp, 7bp tighter than where it priced.

EFSF last syndicated a deal at the end of August, a €2bn September 2040. Its target is to raise €49bn in 2017.

“They’ve done a mix - they can do medium or long-term. The market is very constructive,” said another banker.

The transaction will come ahead of a planned US dollar issue, which bankers expect to come this month. The ESM published updated legal documentation on September 28 that puts it a step closer to issuing its first US dollar trade.

Another deal set to hit the market next week is the European Union’s €300m, which will likely have a maturity of 15 years.

The EU’s second issuance of the year - following the issue of a €600m due April 2031 - should “easily be absorbed by the market”, said the first banker.

He noted ongoing demand for long-dated paper. While the EU has modest funding requirements this year, it will likely come to market more frequently next year as European Financial Stabilisation Mechanism loans approach redemption. (Reporting by Melissa Song Loong; editing by Helene Durand and Ian Edmondson)

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