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France Trims Debt Sale Plan as Sarkozy Fights for AAA

France's President Nicolas Sarkozy
France's President Nicolas Sarkozy. Photographer: Jock Fistick/Bloomberg

France trimmed its 2012 debt sales plan as President Nicolas Sarkozy implements budget cuts in a bid to save the country’s AAA credit rating.

France will require 177.9 billion euros ($232.7 billion) in financing next year, down from the 182 billion euros planned Sept. 28, Agence France Tresor said in an annual statement. That includes 78.7 billion euros to cover the budget shortfall and 97.9 billion euros to roll over medium and long-term debt.

The funding needs are being set out as Standard & Poor’s, Moody’s Investors Service and Fitch Ratings review the sovereign creditworthiness of Europe’s second-largest economy. Sarkozy, who faces an election in four months, has sought to prepare the ground for a possible downgrade, saying Dec. 12 that the loss of the AAA rating wouldn’t be “insurmountable.”

“The financing conditions of France remain very good,” AFT Chief Executive Philippe Mills said today on a conference call from Paris. “There is no movement among investors to reallocate assets.”

The premium France pays over Germany to borrow for 10 years is now 113 basis points, up from 40 basis points at the end of last year.

Even so, the average financing costs of medium and long-term debt sold in 2011 was 2.8 percent, the second-lowest level since the creation of the euro after the 2.53 percent yield achieved in 2010, the AFT said. The bid-to-cover ratio at all auctions this year was 2.4, up from 2.1 in 2010.

Not Just France

Mills said the ratings companies’ reviews of France’s AAA status stem from Europe’s sovereign debt crisis and don’t target France alone. He also said when the 10-year spread with German bonds jumped to a two-decade high of more than 200 basis points in the fourth quarter, the AFT saw an increase in demand from emerging market central banks and sovereign wealth funds, as well as domestic buyers, including insurers.

“When there was market turbulence in the fourth quarter, emerging market central banks and sovereign wealth funds remained net buyers,” Mills said. “There was also a large number of domestic investors that came into the market as soon as we saw just a slight increase in yields.”

The proportion of short-term debt in France’s overall debt stock has dropped to 13.5 percent, from 15.2 percent a year ago and 18.6 percent at the end of 2009, the AFT said. France’s national debt stood at 1.69 trillion euros at the end of the second quarter, according to national statistics office Insee.


Short-term debt sales will drop by another 4.2 billion euros next year, the AFT said. The AFT bought back 23.8 billion of bonds this year and will continue to buy back in the months ahead, depending on market conditions.

“In terms of overall strategy, our intention is to remain transparent, predictable and flexible,” Mills said.

The AFT is studying the possibility of issuing variable-rate long-term bonds, he added.

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