Demand For EFSF Paper Collapses As World Wakes Up To Post Bailout Hangover

Tyler Durden's picture

It just goes from bad to worse for Europe, which had been hoping to issue €5 billion in 15 year bonds to finance part of the Irish bail out via the EFSF. Instead, once seeing the orderbook, or lack thereof, Europe ended up slashing the notional by 40% and the maturity by 33%, to a €3 billion issue due 10 years from now. And that is hardly the end of the concessions. As the FT reports, "The bond from the European Financial Stability Facility will only target €3bn, instead of €5bn, and will be in 10-year bonds rather than a 15-year maturity because of worries over demand. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity. Banks hired to manage the deal are Barclays Capital, Crédit Agricole and JPMorgan." Do you see what happens Larry, when China walks? But so we have this straight, Europe plans to fund a total of €1 trillion in EFSF passthrough securities.... yet it can't raise €5 billion? Just.... Priceless.

From the FT:

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 struggle to attract interest in spite of Klaus Regling, thead of the EFSF, launching a charm offensive in Asia last week to encourage interest.


Already delayed from last week, EFSF officials decided to price this week because market conditions could deteriorate if they held off any longer.


The bond is expected to price at yields of about 3.30 per cent, and about 130 basis points over Germany, the European market benchmark. This is a big mark-up since the middle of September, when existing 10-year EFSF bonds were trading around 2.60 per cent and only 70bp over Germany.

China makes good on its threat to not be perceived as the dumb money any more:

Bankers say earlier in the year Chinese and Japanese investors had been big buyers of EFSF bonds on the basis that they were triple-A rated with a big premium over Germany, which was seen as a risk-free premium.

As for the levels, regulars know that EFSF spreads have blown out to records lately, meaning that as less demand materializes, spreads will have to go ever higher, in the process obviating the advent of reality courtesy of a French downgrade. It seems the market has already priced it in!

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silver500's picture
"Hangover" - exactly, the central banks give everyone drugs to give us a high.

The world is building tolerance and requires more drugs for the same affect and withdrawal symptoms are getting worse.

When will they realise that the problem is caused by the drugs and we need to go Cold Turkey.

Ahmeexnal's picture

So if they need 1 trillion, but only have 5 billion that means they will dilute euro value to one two hundreth of its current value with the help of Gutenberg's printing press. 


Panic Panic Panic's picture

Bullish!  Where's my tinfoil "Dow 5 Million" hat?

redpill's picture

Every Foolish Sovereign Fails

franzpick's picture

It is thrilling to envision the banks and sovereign leaders, who have over the years painted themselves into a financial corner, asking for more paint to somehow open a way out of their trap.

Hard1's picture

Who want's the equity piece of a 4-5x levered CDO?

Long-John-Silver's picture

I'll take Gold and Silver over paper every time. BTY; It's on sale today.

DoChenRollingBearing's picture

+ 1

Europe is just another bad bet.

Corzine's $12,000,000 bonus means HE can buy almost 7000 oz of gold.  How many here at ZH can do the same?

OWS?  Where are you guys?  Isn't this the kind of thing you should be outraged about?

Bob Sacamano's picture

"OWS?  Where are you guys?  Isn't this the kind of thing you should be outraged about?"

No, the NJ OWSers voted for him.


DoChenRollingBearing's picture

Yes, just what I was hinting at.  A well deserved + 1 for you.


Like someone on another thread just wrote, Corzine's next stop will be K St. in DC.  Maybe The Podesta Group?

redpill's picture

Come on now, he deserves a big bonus.  It isn't easy to fail so completely and spectacularly.

DoChenRollingBearing's picture

+ 1

I almost forgot about the job he did on New Jersey...

motley's picture

Just another revolving door politician/globalist, nothing to see here...

Missiondweller's picture

Yes, if their average IQ was over room temperature they would be outraged.

Deadpool's picture

Apart from a dent to his reputation, Corzine also stands to lose financially from the MF Global bankruptcy filing. Corzine’s compensation last year was $14.2 million, including stock options MF Global valued at $11.1 million. Those options pay off at a share price of $9.25, which means they are very likely to be worthless now.


Deadpool's picture

=35.55% of MuFfdive Global

1) Fidelity funds, 13.9 million shares or 8.44% of common stock

2) Guardian Life Insurance Co., 12.9 million common shares, or 7.8%

3) Fine Capital Partners, 21.5 million shares, 7.37%

4) Cadian Capital Management, 10.2 million shares, 6.17%

5) TIAA-CREF, 9.5 million shares, 5.77%

Bloomberg News
Chris Flowers

Chris Flowers: The private-equity investor often is among the first calls for ailing financial firms in need of a lifeline. Flowers’s firm, J.C. Flowers, in 2008 agreed to help MF Global refinance debt, after MF Global suffered a $141 million charge from unauthorized wheat trading.

J.C. Flowers committed to invest up to $300 million in MF Global in return for preferred stock that pays a hefty dividend. The preferred stock converts to common shares at a price of $12.50, well above MF Global’s latest share price. Flowers’s stake also is likely worthless, barring a large sale or other rescue of MF Global.

HoofHearted's picture

"China offered to fund the EFSF, provided that it buys gold, silver, and other commodities rather than worthless paper. Chinese trademaster and head pirate, Fuk Yu, was quoted as saying, 'All your gold are belong to us...bithcez...'" 

fonestar's picture

Still buying all that I can.  Just licking my chops waiting for the inverse-Lehman moment when an industrial user says "we can't find any metal!"

kito's picture

long john, europe is not printing. and as the dexias and the mf globals continue to add to the debt destruction and deleveraging, you are looking at a very deflationary environment. be very careful with pms. ben and the ecb are in no mood to print. people underestimate the major central bankers. they understand full well what happens when excess money is released...

SamuelMaverick's picture

go tell your nonsense to SNB and Japan. Then go to the St louis Fed money aggregate charts and look for yourself. the most recent M1 chart actually hit the top of the graph, next week they will have to rescale the parameters in order to be able to get the hyperparabolic vertical line back on the graph. Deflation my ass.  The only thing that you wrote that made sense was not to underestimate the central bankers. Sorry, but you are delusional if you believe the deflation bullshit. The only things that are deflationary are the assets that depend on access to bank money ( real estate etc... )  

cranky-old-geezer's picture



You apparently understand nothing about monetary practice.

All this debt paper collapse doesn't reduce the money supply.  It simply eliminates creditor claims, effectively transferring wealth from creditors to debtors.

Tao 4 the Show's picture

Yes indeed. Inflation/deflation is not so simple as many suggest. Collapsing derivatives don't necessarily reduce effective money supplies or prices.

pendragon's picture

expect more stage managed bs that the markets melt up on post g20 cannes

SheepDog-One's picture

And expect 48 hour halflife to be reduced to 24 hours max now. Who is left to be fooled?

SheepDog-One's picture

Wow that Hopium hangover is a real skull splitter.

Fips_OnTheSpot's picture

I postpone my personal hangover to tomorrow - and it's not "financially induced" :D

DoChenRollingBearing's picture

Surprise!  Corzine bought a bunch of Euro-paper...

Deadpool's picture

this is first sign of the failure. There will be more.

p.s. who the fuck would even step up to 3billion when we know it goes towards worthless Irish debt? China can only be counted on to do stupid things for so long.

SeverinSlade's picture

When the solution to excessive debt is MORE debt, you know the plan is fucked.

youngman's picture

Its not that they reduced the amount..5 billion to 3 billion...its who is the idiots that are buying any of it...are investors really that stupid...or is it just one Central bank buying from another Central bank......or Fed to ECB...and yes gold and silver down today...well because...they just are...they can´t keep up with the fiat printing...the fiats get first crack at any good press...

Dick Darlington's picture

Add to this the latest cookings from Finland where they are preparing to add a mechanism to the Treaty with which exit from eurozone would be "legal". Dunno if they are preparing to run to the hills themselves or is it for the peripheral countries...

Finland would allow the euro resignation (Google Translate)

Finland has quietly made a policy decision that the EMU can be connected to the provisions of an agreement on how the euro erotaan. Alignment means that Finland would allow the resignation of a member of the euro area, which is not currently legal.

The Prime Minister made an alignment of currencies on Thursday, and renewed it last Tuesday. Exists in practice, already a political consensus, as opposition parties agree.

Prime Minister Jyrki Katainen (cons), the Board of Directors of the EU Ministerial statement is word for word as follows:

"Finland is ready to explore the possibility of strengthening the provisions of the Treaty establishing the Euro to resign."

The present of the EMU in the Treaty of the Treaty on European economic and monetary union, there is no regulations on how the euro erotaan. It is common ground that the euro will also lead to rejection of the EU's resignation.

The Government of Finland took a stand after the Dutch had suggested that the euro area's resignation would allow the same way as the withdrawal from the Union.

The opposition agrees with

Parliamentary opposition parties, the True Finns and the center support the idea.

Centre Party MP and the Parliamentary Grand Committee Vice Chairman , Antti Kaikkonen dictated by the last Tuesday of the minutes of the Committee to that effect in a statement. It agreed with the True Finns MP Peter Jääskeläinen .

Kaikkonen statement was ordered to be secret, but secrecy was demolished on Friday.

It reads as follows: "Any constitutional changes should be to create rules for insolvency vajonneiden countries leaving the euro."

Soini led out of the EMU?

Eroamissäännöksen absence has become a burning Greek velkakurimuksen period. Greece has been shown at one time or another door out of the euro.

But, in principle, the resignation may be topical, sometimes by Finland, where the test would be a politically appropriate. In practice, such a presentation could become the government, the prime minister should be based in Finland , Timo Soini .

Euro area countries have put forward a variety of changes in the EMU in the Treaty.

In Germany, almost all the major parties want to change the basic agreement. The German government members have suggested that the EU Court of Justice to monitor the budgetary discipline and impose penalties for violating rules of the countries. EU law does not present such a power.

The Netherlands has been a great idea to spin. The Hague has been suggested that repeated violations of the provision could be exported to a member country of the voting rights. Finland does not support this proposal.

The Commission has proposed a joint and several bonds and eurobonds. Finnish Government's position on eurobonds intensified last Tuesday. The Board decided that Finland will not accept the EMU contract changes that would allow the joint and several eurobonds.

The long road ahead

EMU, the Treaty will not change overnight. It requires at least all the 27 EU member governments of consensus. The decision to factories in the summit, which should be consulted before the European Parliament, and possibly also the European Central Bank.

Nor is it conceivable that need to be to convene the EU convention, after which the changes confirmed at the Intergovernmental Conference. Under this option, the time can keep you busy for years.

The changes, however, attempt to perform as quickly and conveniently.

Germany is related to Finland, the aim is that the Berlin Protocol, which is integrated into the treaties. It would apply to all other EU countries except Denmark and the UK, with a permanent exception to the EMU.

Drawing up the Protocol aims to ensure that the articles of the Treaty avattaisi.


plantigrade's picture

Keep the Euro as legal tender besides the national currency to keep European business, but get out of the financing mechanism.

Last countries remaining finance the Euro mechanism.

Azannoth's picture

"Just.... Priceless." - Because your Mastercard is already maxed out ! LOL

Deadpool's picture

gold could be down because MF Global has to liquidate everything (which would include Europe debt which killed them), or dollar rally, or someone sold some they don't have to a market that is leveraged 100:1...nothing near a correction. Gold is only asset class up over 10 years. Today is another of the 1000 reasons why = currency debasement to infinity.

The Deleuzian's picture

Holy shit Deadpool!!...You're not as stupid as I thought...Trying to justify, predict, or prognosticate how, when, and why gold moves is futile...Give up...Just take cash you don't need to pay bills, or $ to invest in other 'vectors,' and buy physical...simple yet profound and you will be happy...

Troll Magnet's picture

I agree with everything except the "you don't need to pay bills" part.  Given that TPTB will do everything in their power to prolong this for as long as possible, I'd urge everyone to pay their bills on time, stay clear of the housing market, don't buy anything big like a car and remain debt free.  And yes.  Do buy gold and silver and take physical delivery.  But keep some cash on hand to remain liquid for as long as the system is in place.

The Deleuzian's picture

Troll Mag...I think you misunderstood my point...I just payed my e-, my internet and my rent today...The double negative is confusing...admittedly!

bankonzhongguo's picture

And once again risk can only be priced in with higher interest rates.

Don't worry your friendly neighborhood Federal Reserve will purchase any under-subscription.

topcallingtroll's picture

Dammit you guys just dont like to see people partying and having fun. Always trying to throw a turd in the punchbowl.

Lalala la de la....I cant hear you.

Everybody buy buy buy!

SaMsKy's picture

Priceless :D That's right baby


jcaz's picture

3.30%?   No thanks-  talk to me when you can pay me closer to 8% to hold this shit.

Strider52's picture

They could promise to pay 200% in 60 days and I wouldn't come near this Radioactive Waste. No thanks, I'm too busy trying to find all the gold I lost in the boating accident.

RobotTrader's picture

IBD Top 50 mostly green today.

Except for the few "resource" stocks getting the beat down, like AUY, IAG, etc.


sheeple2012's picture

I Keep looking for NFLX and GMCR in the IBD 100, what happened?

boyplunger's picture

monalisa is falling apart ?

RobotTrader's picture

44 days running with -1000 panic TICK or worse.

"Investors" still pretty jittery.$TICK&p=D&yr=0&mn=6&dy=0&id=p37322057532

lesterbegood's picture

This report from Benjamin Fulford may shine light on the current situation:

 The situation in Europe is making it clear to all but the most brainwashed that something historical is taking place. What is happening is that the criminal element at the very top of the Western power structure, especially at the very top of the financial system, has been cut off from their money printing machine. As a result, the IMF and the major European and US money center banks are insolvent. No amount of lying or paper shuffling or propaganda is going to hide this fundamental truth. The governments of Greece, Ireland, Portugal, Italy etc. know that the debts they supposedly owe to bankers were created through fraudulent book entries and thus do not have to be repaid. That is why the banks suddenly announced that Greece only had to pay back 50% of their debt even though such a write off would destroy them. They are hoping for a tax payer bail-out that is just not going to happen. It is game over. The Rothschild banking nightmare is ending

SMG's picture

I really hope this is true.  I'll believe it when I see it.