European Financial Stability Fund Bond spreads (EFSF)
Comment of the Day

November 21 2011

Commentary by Eoin Treacy

European Financial Stability Fund Bond spreads (EFSF)

Eoin Treacy's view
European Financial Stability Fund Bond spreads (EFSF) - The EFSF was heralded as the answer to the Eurozone's debt crisis when it was first mooted. However, following its slow passage through multiple parliaments and the size of the problem relative to the capital allocated, there have been increased calls for additional funds, more leverage and quantitative easing.

The result has been that the original 10-year bond issued in June has languished along with peripheral debt. Spreads over German bunds have risen in tandem with those of other Eurozone countries and there is little sign that this trend has ended.

(Please note there is only one EFSF bond and no generic yield. Therefore I can only import the price into the Chart Library. The above spread is of prices rather than yield so it is quoted the other way around. While the shape of the spread is correct the scale does not reflect basis points.)

The European crisis has been developing since at least 2008 and is rapidly coming to at least a partial conclusion. (Also see Comment of the Day on August 12th 2008 and January 19th 2009). The EFSF should yet prove to be a valuable tool in helping stabilise the Eurozone's sovereign debt markets. However, the current issues will have to be worked through first and at present bond vigilantes are demanding substantive action by the EU/ECB/IMF to allay fears of a further deterioration in credit conditions and an exit by at least one country from the union.

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