Business World

Thursday 23 November 2017

Concern for rescue fund as bonds start to trade below face value

Donal O'Donovan

Donal O'Donovan

Markets have started to question the credibility of Europe's chief rescue fund, which was only set up last year to help solve crippling debt problems in several economies, including Ireland.

While the fund has an AAA credit rating and is backed by the likes of Germany and France, some traders have started to sell the bonds the rescue fund issues.

The fund, known as the European Financial Stability Facility (EFSF), is Europe's chief weapon for funding debt-ravaged countries.

Bonds issued into the markets by this fund are now selling for less than face value for the first time, illustrating that some traders question the long term credit-worthiness of this body.

Analysts say EFSF bonds are selling for below cost because faith in the fund is eroding rapidly.

Bonds sold by the EFSF were trading at 97pc of face value last night.

It's a particular worry for Ireland, which has relied on the EFSF to raise cash after being forced out of the markets a year ago.

The EFSF was set up as a high-quality borrower, which could act as a proxy borrower when the markets no longer had faith in individual countries.

"This has been the worst week in the market since the start of the crisis," said Padhraic Garvey of ING Bank in Amsterdam.

"The EFSF needs to be able to borrow at economic levels and cannot," he said.

If the situation continues, it will cast doubt on the ability of the EFSF to raise money for Ireland and other countries.

It raises the prospect of the bailout fund eventually being forced out of the markets in the same way Ireland was a year ago.

Irish Independent

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