EU bailout fund to launch one-year bond in near future

(FRANKFURT) - The EU's bailout fund said on Tuesday it will launch one-year bonds as an alternative to its planned three-year bonds, which it shelved last week after rating agency Moody's downgraded France's debt rating.

"Launching a one-year bond means that we can react to strong market demand on the short end and provide investors with an alternative to the planned three-year bond," said Christophe Frankel, chief financial officer of the European Financial Stability Facility or EFSF.

Last week, the EFSF was compelled to postpone a planned auction of three-year bonds after Moody's downgraded France by one notch from its top rating.

The move meant that EFSF's new long-term issuance -- currently rated Aaa by Moody's -- no longer satisfied the necessary criteria for selling debt, the agency explained.

Long-term bond issues of the EFSF, the bailout fund set up to assist struggling eurozone countries such as Greece or Ireland, have to be fully backed by countries that enjoy a similar rating to its own top rating.

France has dropped out of that exclusive club -- which now includes only Finland, the Netherlands, Germany and Luxembourg -- so the fund does not have sufficient guarantees to issue long-term debt.

EFSF did not provide an exact timetable for the alternative one-year bond, but said it would launch it "in the near future, subject to market conditions."

European Financial Stabilisation Mechanism - guide