France raises 8 bn euros paying slightly higher rates

5th January 2012, Comments 0 comments

France raised 7.963 billion euros ($10.23 billion) in new long-term bonds in a successful auction Thursday but paid slightly higher interest amid fears over the country's credit rating.

In France's first auction of 2012, the rate on the benchmark 10-year bond rose to 3.29 percent, up from 3.18 percent during the last long-term bond issue on December 1.

Demand for 10-year bonds was lower, with a bid to cover ratio of 1.64, almost half the 3.05 ratio reached in the December auction, but analysts said overall demand was solid.

"The French bond auction this morning saw decent demand but rising yields showed a deterioration in investor confidence in France's ability to maintain its top notch credit rating," said City Index analyst Joshua Raymond.

Ratings agencies have warned that France is exposed to the sovereign debt crisis gripping the eurozone and have threatened to downgrade its hitherto perfect rating.

The auction came after the European Central Bank agreed last month to loan a record 489.2 billion euros at 1.0 percent to 532 eurozone banks in a three-year refinancing operation.

Following the last similar operation during the global financial crisis, banks used a considerable portion of the money to buy sovereign bonds, helping keep government borrowing rates low.

Thursday's auction reached the treasury's goal of raising between 7.0 and 8.0 billion euros.

For the 10-year bonds, maturing on October 25, 2021, the amount raised was 4.020 billion euros.

For bonds maturing on October 25, 2023, 690 million euros were raised at an average rate of 3.50 percent.

Longer term, France raised 1.088 billion euros at an average rate of 3.96 percent on bonds maturing on April 25, 2035.

And on bonds maturing on April 25, 2041, France raised 2.165 billion euros at an average rate of 3.97 percent, against 3.94 percent during the last similar operation.

On the secondary market, the yield on French 10-year bonds rose 3.346 percent at 1541 GMT from 3.305 percent at closing Wednesday, with yields rising on all eurozone bonds except Dutch bonds and safe-haven German Bunds amid renewed concerns about the debt crisis.

France said in late December it will need to raise 178 billion euros in medium and long-term bonds in 2012, slightly less than last year, as the state will have to meet a budget deficit of 78.7 billion euros and repay 97.9 billion in debt.

"This auction was on the whole a success," said Cyril Regnat, an analyst with Natixis.

"Demand remains sustained and on the very long-term the allocated amounts already cover a large part of what was raised in all of 2011," he said.

The government is struggling to convince financial markets and ratings agencies that it should keep its top credit rating and has imposed two deficit-cutting packages aimed at saving a total of 72 billion euros since August.

It has said it needs to save 100 billion euros to balance its budget by 2016 but President Nicolas Sarkozy, facing a tough re-election battle in April, has vowed no new austerity measures.

Thursday's offer highlighted the spread between rates paid by France and by Germany, whose bonds are considered the gold standard of eurozone debt.

Germany on Wednesday sold 4.0 billion euros of it 10-year bonds at an average yield of 1.93 percent, receiving 5.14 billion euros of bids for its offering of 5.0 billion euros.

In an analysis note, Credit Agricole said the French auction had been successful enough to lessen market concerns.

"The overall cover ratio of around 1.9 was solid, though the general risk-off environment has seen these bonds underperform versus Germany," it said.

"In the current, environment, the French auctions were decent and should ease concerns of market appetite going forward."

© 2012 AFP

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