January 6, 2011

French Bonds Sell Well; China to Buy Spanish Debt

Strong demand for French bonds reassures; China reports confidence in markets

Closing out a week of AAA-rated government debt offerings in Europe, France on Thursday placed nearly 9 billion euros ($11.786 billion) of bonds to strong demand, with yields higher but in line with secondary market yield rise.

Reuters reported that 10-year yields on French bonds are up about 55 basis points from their last offering in November, when the October 2020 bond last came up for acquisition. In the secondary market, the 10-years yielded 3.371%; that was approximately 41 basis points above the Bund. The yield premium remained steady at the conclusion of the sale.

The strong demand for French paper, and German on Wednesday, reassured markets that had worried about weak auctions for German Bunds at the end of 2010. However, weaker nations begin their own bond sales next week; that will test the market’s resolve.

In December, France’s debt agency had said it intended to trim bond offerings in 2011 from its original projection of 186 billion euros to 184 billion, in keeping with a lower deficit in its budget.

Meanwhile, Spanish newspaper El Pais reported that Li Keqiang, vice premier of China, said his nation would buy approximately 6 billion euros of Spanish debt. In a Reuters report, the vice premier said at a meeting that the country was willing to purchase as much Spanish debt as it currently holds in Portuguese and Greek debt combined; the two together make up about 6 billion euros. There was no comment from the Spanish government on the report.

Gao Hucheng, vice commerce minister, said in a statement on the commerce ministry’s website that China has been increasing its holdings of European public debt. He expressed the country’s confidence in both Spanish and European financial markets and also said China believed they would overcome the debt crisis.

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