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France, Spain Sell $16.7 Billion of Bonds

France Sells EU7.99 Billion in Bonds at Lower Borrowing Cost
A European Union flag, left, and French national flag, fly outside the Banque de France, also known as the Bank of France, in Paris. Photographer: Balint Porneczi/Bloomberg

Spain and France sold 12.5 billion euros ($16.7 billion) of bonds as European Central Bank loans to banks helped spur demand, pushing borrowing costs lower.

The Spanish auction met its maximum target, with 4.5 billion euros of bonds sold. France issued 7.99 billion euros of debt, at the top end of the range targeted by the treasury. Total demand at the French auction was 2.5 times the amount of bonds on offer.

The auctions suggest that at least some of the 1 trillion euros in loans the ECB is providing to Europe’s banks is flowing into government bonds, easing the region’s debt crisis and eclipsing concern about slowing growth. The Frankfurt-based central bank yesterday allocated 529.5 billion euros in three-year loans to 800 banks, topping the 489 billion euros handed out to 523 lenders in the first such operation in December.

“The banks have loads of money to invest, so it’s hardly a surprise that the auctions have gone well,” said Bill Blain, a strategist at Newedge Group in London. “What’s the long-term outlook? That’s less sure.”

Spain’s 10-year bond yield fell 7 basis points after the auction to 4.899 percent as of 11:56 a.m. The yield difference over German bunds of the same maturity narrowed 11 basis points to 306 points. France’s 10-year yield slid 8.3 basis points to 2.782 percent. The spread over bunds dropped to 96 points.

Auction Details

Spain sold 1.9 billion euros of benchmark three-year bonds maturing in July 2015 to yield 2.617 percent, down from 3.332 percent when the security was last auctioned Feb. 16.

A bond maturing in April 2014 was sold to yield 2.069 percent, while a 2016 bond was priced to yield 3.376 percent compared with 4.021 percent on Jan. 19, the Madrid-based Bank of Spain said today.

Demand for the benchmark three-year bond was 2.37 times the amount sold, the Treasury said, compared with 2.19 times on Feb. 16. Demand for the April 2014 bond was 2.81 times the amount sold, while the bid-to-cover ratio was 2.59 for the 2016 bond compared with 3.24 on Jan. 19.

France sold 3.92 billion euros of benchmark 10-year debt at an average yield of 2.91 percent. The borrowing cost for the 3 percent bond maturing in April 2022 was less than the average yield of 3.13 percent on Feb. 2. France also sold five, six and 15-year debt, will yields falling on all.

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