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Greece developments raise EFSF funding risks

The European Financial Stability Facility will face an uphill struggle to sell its forthcoming bond after Greek Prime Minister George Papandreou’s call for a referendum on the latest EU aid deal sent markets in a downward spiral on Tuesday morning.

The EFSF announced a EUR3bn no-grow long 10-year to raise funds for the next tranche of the Irish bail-out which is due to be paid by the middle of November. It mandated Barclays Capital, Credit Agricole and JP Morgan on Monday and expectations are that the transaction will launch and price on Wednesday.

EFSF’s spreads, which were already under pressure, continued to widen out on Tuesday. The 10-year priced in June at 17bp over mid-swaps is now bid at 87bp over, 7bp wider than Monday. Meanwhile, its five-year spreads are out by 5bp to mid-swaps plus 68bp and plus 67bp for the July and December 2016 issues respectively.

The issuer has underperformed the market with 10-year trades for the EU and the EIB unchanged on the day at mid-swaps plus 37bp and 41bp respectively.

“The leads and the issuer must be anxious about tomorrow’s trade,” said an SSA syndicate banker. “It was going to be hard enough before the Greek comments, but it’s just got a whole lot harder. There are massive amounts of uncertainty around the name and many investors who are very risk averse don’t want to buy something they don’t know how it will look like in 15 months, let alone 10 or 15 years.”

He added that for many investors, the decision whether to invest or not was based clouded by the political backdrop.

http://business.financialpost.com/2011/11/01/greece-bombshell-raises-efsf-funding-risks/

Carney says Greece right on referendum

Bank of Canada Governor Mark Carney said the Greek government is right to seek broad democratic support on whether it should accept the financial-rescue plan on offer from its partners in the euro area, so he respects Prime Minister George Papandreou’s plan to hold a referendum. Speaking to the House of Commons Finance Committee Tuesday morning, Mr. Carney notes that it is “imperative that there is widespread support” for tough decisions to implement major fiscal austerity measures, because they will unfold over a long period. “If it’s the judgment of the Greek government that this is the best approach to validate that support, we fully respect that,” Mr. Carney said. http://www.theglobeandmail.com/report-on-business/economy/carney-says-greece-right-on-referendum/article2220900/