The bond from the European financial stability facility will seek to raise 3 billion euros ($4 billon) and will be in 10-year bonds rather than a 15-year maturity because of worries over demand, say bankers. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity.
Bankers familiar with the issue said the EFSF had been considering a 5 billion euro issue. However, the EFSF has denied this, saying it had always sought a 3 billion issue.
One banker said: “There is so much uncertainty over the EFSF that it will be much harder to sell than it was earlier in the year, when we saw massive demand from European funds and Asian accounts. Japan and China bought in big size earlier in the year. We are not sure we are going to see that type of demand this week.”
Bankers said the bond, which is expected to price on Wednesday, may see weak demand in spite of Klaus Regling, the head of the EFSF, launching a charm offensive in Asia last week to encourage interest.
EFSF officials decided to price this week because market conditions might deteriorate if they hold off any longer, according to bankers.
The bond is expected to price at yields of about 3.30 percent, about 130 basis points over Germany, the European market benchmark. This represents a big mark-up since the middle of September, when existing 10-year EFSF bonds were trading at about 2.60 percent, only 70 basis points over Germany.
Bankers said Chinese and Japanese investors had been big buyers of EFSF bonds earlier in the year on the basis that they were triple A rated with a big premium over Germany, which was seen as a risk-free premium.