Portugal comes off the market, EFSF comes on the market.
Nomura’s European rates team was thinking ahead on Friday (click charts to enlarge):
Some quick explainers — Nomura assumes a (conservative) €50bn overall estimate for bailing out Portugal, which is shared out among three official lenders: the IMF, the EFSM, and the EFSF. A bilateral loan or two to Portugal is possible and would lighten the EFSF’s load although €20bn still sounds right.
With the EFSF’s over-collateralisation, that means €34.6bn of debt issued by the Facility.
Some more detailed explainers — this is what the Nomura think the EFSF would aim to issue beyond its current five-year bond offering:
- Three benchmark bonds with maturities of 5-, 7- and 10-years, all to be issued in 2011 and sized between €3bn and €5bn (primary issuance). One per quarter in the Ireland-only case, but more rapidly implemented in the combined case. We do not think a 3-year issue is likely.
- We model bond taps in the region of €1-2bn depending on maturity in order to keep the ultimate bond sizes within an EIB [European Investment Bank, another supranational issuer] equivalent range: €6bn-9bn.
- Loans are disbursed in 12 equal instalments, with Portugal assumed to take a bailout in Q2 2011 (for modelling purposes only)
For modelling purposes only.
Everyone does assume a bailout now, of course. We don’t, not yet anyway. Imagine Portugal plays for time, and tells Europe a bailout has to finance bond buybacks as well as give loans, say. And short-dated Portuguese bonds really are pricing in restructuring and maturity swaps at this point, which may need financing from somewhere…
One last quick explainer on ‘collateralised’ by the way — ‘wrapped’ might be a more exact word. Imagine you’re a big investor whose usual allocations of peripheral bonds are suffering — both because credit risks rise, and issuance stops when bailouts come. Buy EFSF. They’re ‘Greek’, ‘Irish’, ‘Portuguese’ bonds issued with the full faith and guarantee of the rest of the eurozone.
And we can all rely on those guarantees, can’t we?
Related links:
Hedging Europe, buying EFSF – FT Alphaville
The EFSF chief executive writes in… - FT Alphaville
Portugal’s negative cash flow – FT Alphaville
