EU raises €5bn for Irish bailout

The European Union has successfully sold  €5 billion in bonds which will be used to fund its contribution to Ireland's $85 billion EU-IMF bailout.

The bond sale, which took place this morning, was three times over-subscribed and was sold out within an hour, the EU said.

According to Bloomberg, the five-year notes were priced to yield 12 basis points more than the benchmark swap rate, or about 2.5 per cent. That compares with the 5.7 per cent rate being charged to Ireland for the EU-IMF loans.

The bonds were sold through the European Financial Stability Mechanism (EFSM), an arm of the European Commission. Barclays Capital, BNP Paribas SA, Deutsche Bank AG and HSBC Holdings Plc managed the issue.

The €5 billion auction was the first in a series of sales by the EFSM and the Luxembourg-based European Financial Stability Facility (EFSF), which borrows money on behalf of euro zone members.

The EFSF will follow suit with its own bond issuance later this month.

The European Union and the EFSF will issue €40.2 billion to the State in 2011 and 2012, almost half of the total €85 billion being made available. The International Monetary Fund, the National Pensions Reserve Fund and bilateral loans will contribute to the remainder.

The EU-IMF rescue plan for Ireland assumes the Government will be shut out from private bond markets for two years.

Last month, the European Commission published a detail calendar outlining its plans for bond issuance over the next few years. Between now and the end of March, Ireland stands to receive some €11.7 billion from the EFSM and the EFSF to help cover the cost of running the State.