The European Financial Stability Facility would sell bonds backed by the guarantees and use the money it raises to make loans to euro-area nations in need, the finance ministers agreed yesterday in Luxembourg. The new entity would sell debt only after an aid request is made by a country.
The main difference with the U.S. TALF is that ours is funded by a single sovereign authority, the U.S. Treasury. This EFSF can be undermined if one sovereign government decides to back out and refuse to contribute, leaving other countries on the hook. Watch the CDS market for bets on which nation will be first to heard for the exit.
In other news, bond portfolio managers come late to the game once again. They finally figure out that the bond market is behaving kind of bubbly. Really? You don't say? I've been saying that for what, a year and a half now? I don't expect to hear from any bond fund about a job offer since I'm too prescient for their tastes.
