French costs rise but demand solid at debt sale

Thu Jan 5, 2012 6:27am EST
 
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By Daniel Flynn

PARIS (Reuters) - French borrowing costs rose slightly when the euro zone's second-largest economy sold debt for the first time this year on Thursday but demand was solid despite concerns the country could lose its AAA credit rating.

With a heavy schedule of debt redemptions in the first quarter, market fears about euro states' ability to fund their debts remains high. France, which has a slowing economy and a presidential election looming in April, is seen by many to be at greater risk from ebbing investor confidence than regional powerhouse Germany.

France sold 7.96 billion euros ($10.3 billion) of 10- to 30-year bonds at the auction, at the top of its projected range, after receiving total bids for nearly 15 billion euros.

The yield on the benchmark October 2021 bond rose slightly to 3.29 percent to above the 3.18 percent fixed when it was last auctioned on December 1, but remained in line with yields in the secondary market of around 3.3 percent.

The 10-year spread over Bunds was a whisker higher after the auction at 143 basis points, remaining well below its euro-era high of more than 200 basis points reached in November.

"Overall it's a pretty solid auction," Michael Leister, strategist at DZ Bank in Frankfurt. "It should be enough to dispel concerns with regards to France's funding capacity for the time being."

The yield on the 4.5 percent 30-year OAT maturing in April 2041 rose to 3.97 percent from 3.94 percent in the December 1 auction, the Agence France Tresor debt management agency said.

The Treasury placed 4.02 billion and 2.165 billion euros respectively of the 3.25 percent and 4.5 percent OATs.   Continued...