April 5, 2012

French Bond Sale Successful

Demand strong despite ongoing investor worries

Although spooked investors demanded higher yields Wednesday from Spain before they would be lured into lukewarm interest in the country’s sovereign bonds, no such problem plagued France on Thursday at its own bond sale. Paris placed sovereign debt in an amount close to the top of its range, and while the yield on 10-year debt was a bit higher, the 30-year bond yield dropped.

Bloomberg reported that France was able to sell 8.44 billion euros ($11.02 billion) of its sovereign bonds, at a demand rate that was both higher than at its last auction and higher than it averaged in 2011. The target range was between 7 billion and 8.5 billion euros, and the bid-to-cover ratio was 2.65, up from 2.47.

The yield on 30-year bonds fell to 3.79% from 3.97%, while 10-year debt went for an average yield of 2.98%; at its last sale, on March 1, that yield was was 2.91%. Despite the upcoming elections in three weeks and the obvious nervousness over Spain’s fiscal health, investors were happy to buy the bonds of a euro zone country regarded as fairly stable.

“The market is giving France the benefit of the doubt,” Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, was quoted saying. “They want to see who gets elected and what exactly they’re going to do. Even with a bad auction from Spain, we’re not back in panic mode.”

Spanish yields rose again on Thursday, hitting their highest level since the European Central Bank began its three-year loan program in December. Italian yields also rose, while the yield on German Bunds remained steady.

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