EU bailout bonds make debut as debt concerns persist

The European Union made a landmark oversubscribed issue of its first bailout bonds on Wednesday, but a Portuguese auction showed that the eurozone debt crisis rumbles on despite a fresh pledge of support from China. The European Financial Stability Facility (EFSF) raised five billion euros (6.6 billion dollars) in its first placement of bonds to raise funds for Ireland's rescue.
The European Union created the EFSF last year to fund bailouts by raising up to 440 billion euros through issuing bonds guaranteed by solvent eurozone members, a groundbreaking shift in philosophy opening a precedent of structural rescue support for struggling members.
The yield, or return on investment, was 2.5 percent, according to HSBC bank, which was above that paid by eurozone countries with solid finances but considerably lower than the 7.78-percent yield on Irish five-year bonds. The EFSF bond placement is part of the 67.5 billion euros (86 billion dollars) of aid Ireland is to receive under its EU-IMF bailout agreed in November last year.
The EU established the temporary EFSF last year at the height of the crisis over Greece, but the joint bond mechanism is set to continue under permanent rescue facilities which EU members are set to finalise this year. Some eurozone members, lead by Eurogroup chief Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti, have called for the practice of issuing joint bonds be expanded to allow struggling members to tap lower financing rates before the market forces them to take a bailout.
German Chancellor Angela Merkel has led opposition to the proposal, which critics say would reduce pressure on countries to get their finances in order, but Germany is also constrained by a constitutional prohibition on Germany, as an EU member, taking on responsibility for another member's finances.
Germany successfully placed its first bond issue of 2011 on Wednesday, reaffirming its safe haven status after several operations fell short late last year amid heightened tension on sovereign debt markets owing to problems in Ireland. Portugal raised 500 million euros with a placement of six-month treasury bills, but the yield rose to a new record of 3.686 percent against 2.045 percent in the previous auction.