France’s Government Saves Cash as ECB Drives Bond Demand

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Euro-area governments are reducing their financing burden by locking in the lowest-ever borrowing costs as the European Central Bank’s quantitative-easing program helps support investor demand for the region’s securities.

It was France’s turn to sell bonds at a record-low auction yield on Thursday, following sales by Germany and Italy earlier this week. Amid central-bank purchases of as much as 9 billion euros ($9.8 billion) of French securities each month, the nation’s debt agency says it’s calibrating issuance to match investor demand, including requests for longer-maturity bonds.

“At the moment you have strong auction demand because investors still believe they can buy paper in the auction and then sell to the ECB in a short while with a profit,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “That’s probably going to continue for as long as the ECB are buying.”

The Paris-based debt agency auctioned 4.7 billion euros of bonds due in May 2025 at an average yield of 0.46 percent, down from 0.67 percent at a previous sale on March 5. It also sold 1.9 billion euros of 30-year debt to yield 1.09 percent.

Its sale followed an auction of German five-year notes on Wednesday that yielded minus 0.1 percent, meaning buyers who held the debt to maturity would receive less back through 2020 than they paid for the securities. Italy sold 10-year bonds at an unprecedented yield of 1.34 percent on Monday.

Purchase Pace

Since the Frankfurt-based central bank started its expanded bond-buying plan on March 9, it settled a total of 41.02 billion euros through March 27. The central bank may alter the pace of its unprecedented bond-buying plan if necessary, an official account of the institution’s last policy meeting showed on Thursday. It’s currently set at 60 billion euros a month.

The French 10-year yield increased two basis points, or 0.02 percentage point, to 0.48 percent as of 4:23 p.m. London time, after falling six basis points in the previous two days. The 0.5 percent bond due in May 2025 fell 0.225, or 2.25 euros per 1,000-euro face amount, to 100.245.

The yield on German 10-year bunds, the euro area’s benchmark sovereign securities, rose two basis points to 0.19 percent, having touched a record-low 0.151 percent on Wednesday.

Notes Yields

Two-year yields in France fell toward the minus 0.2 percent threshold beyond which they’d become ineligible for purchase under the ECB plan. The yields touched minus 0.18 percent, the least since Bloomberg began collecting the data in 1990.

The ECB began a bond-lending program to help unclog markets snarled up by its own debt purchases. Securities bought under the program will be made available for lending from Thursday, central bank said on its website.

“The aim of securities lending is to support bond and repo-market liquidity without unduly curtailing normal repo-market activity,” the ECB said in its statement. “The Eurosystem is primarily targeting market participants with market-making obligations.”

France’s government securities returned 3.9 percent in the three months through March 31, a seventh-straight quarterly gain, according to Bloomberg World Bond Indexes. Germany’s earned 3.7 percent.

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