The EU’s bailout fund, the EFSF, enjoyed strong demand yesterday at an auction of six-month debt, Germany’s Central Bank said, only a day after ratings agency Standard and Poor’s downgraded it.
The Bundesbank, which organised the auction, said it received €4.6 billion worth of bids for the €1.5 billion of six-month bonds on offer, at an average rate paid to buyers of 0.2664 per cent.
The bid-cover ratio, closely watched by the markets, was 3.1, meaning the auction of the first such EFSF offer of six month debt paper was heavily oversubscribed.
Christophe Frankel, deputy head of the fund, commented: “The success of today’s auction confirms investors’ confidence in the EFSF as a high quality issuer.”
The auction followed other successful sales by Greece and Spain yesterday as borrowing costs across the weaker eurozone periphery states generally fell despite continuing concerns over the debt crisis.
On Monday, Standard and Poor’s downgraded the EFSF by one notch to AA+ but said it would restore its top AAA ranking if the fund obtains additional guarantees.
The decision was the result of downgrades to France’s and Austria’s ratings from AAA, since they serve as top-level guarantors of the fund, the agency said in a statement.
The downgrade prompted a wave of criticism against S&P, with some accusing it of wanting to push an American-style economic system in Europe and discourage austerity.
However, Joerg Asmussen, a member of the European Central Bank’s executive board, dismissed this idea.
“This opinion goes in the direction of a conspiracy theory, which I reject. In any case, it is easy to reject this theory when you recall that the United States has itself seen its rating downgraded (by S&P),” he told the Bild daily.
Earlier yesterday, the head of the fund, Klaus Regling, also downplayed the downgrade’s impact.
Speaking in Singapore, Mr Regling said the decision would have little impact because two other agencies, Moody’s and Fitch, have maintained their triple A ranking on the bailout fund – and both also say that they have no immediate reason to cut France.
“There’s no need to get overly excited yet,” he said.
“As long as it is only one ratings agency, there is not much of an impact – there is no need to do anything really,” said Mr Regling.
The EFSF, which started off with borrowing power of €440 billion, has €250 billion left following rescues of Portugal and Ireland.
Amid fears the fund would not have enough firepower if a big economy such as Italy were to require a bailout, EU leaders have agreed to replace it with a permanent crisis fund, the European Stability Mechanism (ESM) this year.
The European Central Bank and the European Commission want the funding beefed up so as to provide a really credible back-up for struggling member states.
Mr Regling said there were enough funds available to help troubled countries in the eurozone.
“More than one trillion euros has been made available or is potentially available,” he said.