France sold five-year notes at record-low borrowing costs as it auctioned 8.96 billion euros ($11 billion) in debt, helped by President Francois Hollande’s budget cuts and the European Central Bank’s rate reductions.
France’s 4.5 billion euros in notes maturing in July 2017 yielded on average 0.86 percent today, an all-time low. On June 21, France issued 3.34 billion euros in notes maturing in February 2017 at 1.43 percent.
Hollande, who took office in May, is benefiting from the the ECB’s July 5 decision to cut its benchmark interest rate to a record low of 0.75 percent and its deposit rate to zero. Investors are also looking past France’s record trade deficit and stalling growth to buy debt seen as safer than Spain or Italy’s and offering better returns than Germany securities.
“French sovereign debt is the greatest beneficiary of the flight to relative safety,” said Nicholas Spiro of Spiro Sovereign Strategy in London. “The latest measures taken by euro zone policy makers, in particular the ECB, are doing more to support the debt markets of the core and semi-core of the euro zone than those of the periphery.”
Before the sale today, French benchmark 10-year bonds yielded 2.037 percent, the lowest since Bloomberg began tracking the data in 1990. Investors are demanding 85 basis points more to hold French debt than comparable German bunds.
Spanish bonds fell today, with 10-year yields rising above 7 percent for the first time in a week, after the nation’s cost of borrowing surged at a debt sale. Spain auctioned 2.98 billion euros of two-, five- and seven-year securities.
France today also sold 1.81 billion euros of three-year notes at an average yield of 0.12 percent. That’s 97 basis points lower than achieved at a sale of three-year notes in February. It sold 2.65 billion euros of 2016 notes, paying 0.53 percent, or 136 basis points lower than achieved in January.
Earlier this month, France sold three- and six-month paper at negative yields and its one-year securities also currently trade below zero. Bank of France Governor Christian Noyer warned on July 10 that such rates at least in part reflect a dysfunction of the euro-area debt markets.
“The fact that France has borrowed at negative rates is both good and bad news,” Noyer told journalists in Paris. “It shows the credibility of our country on public finances is there, yet it also marks a certain malfunctioning of the euro zone debt markets.”
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