The first issue of bonds by the European Union to fund its bailout of Ireland attracted demand of nearly four times the offer, with €20.8 billion bid for €5 billion worth of bonds, HSBC bank said AFP.

The yield, or rate of return paid to investors on the five-year bonds, was around 2.59 per cent, at the lower end of expectations, HSBC said.

The European Commission said that the effective rate on the loan for Ireland will be 5.51 per cent – composed of the cost of borrowing for the EU at 2.59 per cent plus a margin of 2.925 per cent agreed in early December.

Although the 2.59 per cent yield was above that paid by eurozone countries with solid finances, even plus the EU margin payment, the money proves much cheaper for Dublin when compared with rates of around 7.8 per cent on Irish five-year bonds.

The funds will be disbursed to Ireland on January 12.

A Commission spokeswoman, Amelia Torres, told a regular press briefing that demand for the bonds had been very heavy, reflecting the strong backing provided by the EU which is top rated by the three main credit assessment agencies.

Ms Torres said the success of yesterday’s sale augured well for subsequent offerings.

The bonds were issued by the European Financial Stability Mechanism (EFSM), a €60-billion facility under the auspices of the European Commission that it created last year at the height of the crisis over Greece to fund bailouts.

It is a complement to the €440-billion European Financial Stability Facility (EFSF), which also plans to begin by issuing this month bonds guaranteed by solvent eurozone members to raise bailout funds.

The bond placement is the first by the EFSM and is part of the €67.5 billion of aid Ireland is to receive under its EU-International Monetary Fund bailout.