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France Sells EU3.97 Billion in Bonds at Record-Low Yields

President Francois Hollande
President Francois Hollande of France. Photographer: Jock Fistick/Bloomberg

France sold 3.97 billion euros ($5.2 billion) in bonds today, completing its 2012 issuance plan as borrowing costs fell to a record low.

France sold 900 million euros of benchmark 15-year bonds at an average yield of 2.56 percent, down from 2.85 percent on Sept. 6, the previous record. It also auctioned six- and seven-year securities at lower yields than previously.

The record-low borrowing costs extend a drop that began a year ago when the European Central Bank unveiled its long-term re-financing operation for banks and was reinforced with the ECB’s September pledge to buy some government bonds if needed. Investors have also disregarded concerns about the election of Socialist President Francois Hollande in May and the decision by two rating companies to strip France of its top credit rating.

“All in all, a very robust auction,” said Annalisa Piazza, an analyst at Newedge Group in London. “Although we suspect France will not be a strong performer amongst the euro core countries in 2013, we would not be too pessimistic as 2012 was a relatively good year for French debt despite all the negative news.”

The ECB cut its growth and inflation forecasts for the euro area today and President Mario Draghi said the region won’t start to shake off its slump until the second half of 2013, leaving the door ajar for further interest rate reductions.

The premium France pays to borrow for 10 years over Germany has dropped to 66 basis points, down from more than 200 points in November 2011 when French banks’ exposure to other euro countries fueled concern about the nation’s creditworthiness.

Borrowings Completed

France has completed its plan to sell 178 billion euros in bonds this year, giving it room to begin raising funds for 2013 and 2014, Agence France Tresor, the debt-management office, said. The AFT bought back 17 billion euros in 2013 bonds maturing in the first nine months of 2012, having already bought back 4 billion euros in 2011.

Hollande has persistently pledged to shrink the deficit and is starting to take steps to tackle France’s record trade deficit and high labor costs, saying last month that he’ll raise sales taxes to pay for a cut in charges on business. At a 2 1/2 hour press conference on Nov. 13, the Socialist president also pledged 60 billion euros in spending cuts over five years.

Hollande has asked unions and business leaders to agree on ways to increase labor flexibility, threatening to decree change if there is no accord.

France today sold 1.38 billion euros in 2018 bonds at an average yield of 1.01 percent, below the 1.29 percent it paid on Oct. 4. It also sold 1.7 billion euros in 2019 debt at 1.27 percent compared with 2.02 percent on July 5.

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