Eurozone’s credibility rock solid

The European Stability Mechanism (ESM) issued yesterday its first short-term debt paper (bills), which met an unprecedented success in this capital market auction. The bid/cover ratio was 3.2. This means that for every euro of this debt issue, investors offered 3.2 euros. The bills mature on 4 April 2013. In detail this ESM’s bill issue attracted offers of €6.2 billion of which €3.1bn were non-competitive. The ESM can accept competitive and non-competitive bids in two separate parts of the auction. Investors can choose to participate in either or in both of them, with different bids. ESM can choose and pick the most attractive ones. At the end of the auction ESM accepted offers of €1.927bn, selling an equal amount of three-month bills, priced at an average of 100.00819%. It must be clarified that in similar auction price bidding for debt paper are realised around the par of the bill, which is full 100% nominal value. If the borrower/issuer is of good faith investors are ready to pay prices a bit above par and the opposite if the creditworthiness of the issuer is questionable. For example Greek bonds at times were priced at 15% of their par value (100%). Given that the ESM bills auctioned yesterday were priced at 100.00819%, the yield for investors are slightly negative at -0.0324%. This is the best proof that the creditworthiness of the ESM is very strong. Only some German debt auctions gave negative yields for investors. ESM is the successor of the European Financial Stability Facility (EFSF). This last Facility was hastily created in May 2010 to support the three Eurozone programme countries Greece, Ireland and Portugal. According to a press release by the ESM the Mechanism will stop auctioning short-term debt paper. It will finance the maturing bills with long-term bonds. In any case this successful auction of ESM/EFSF bills is a solid proof that the creditworthiness of Eurozone is rock steady. It’s a mouth shutting answer to those who had being questioning the very existence of Eurozone at the beginning of last year. Actually they have paid dearly their reserves or rather their attacks on Eurozone. On the contrary those who have bet on the continuity of the single money zone have made lofty profits on all and every placement on Eurozone debt paper. On top of that this auction is a proof that the ESM is successfully succeeding EFSF.