April 19, 2012

French Yields Rise in Advance of Election

Spanish yields also rise on good demand

France and Spain sold bonds, but yields crept higher on both despite the evident willingness of investors to buy. French yields rose in advance of the first round of votes in its upcoming election; Spain continued to battle debt woes.

Bloomberg reported Thursday that France sold 8 billion euros ($10.5 billion) in bonds, hitting its maximum target set by Agence France Tresor, the country’s debt management body. Yields were not so rewarding, however, rising on 2.7 billion euros in benchmark five-year debt to an average of 1.83%, up from 1.78% on March 15.

Investors were happy enough to buy French bonds, also purchasing 3.55 billion euros of bonds that will mature in September 2014 and 1.73 billion euros coming due in April 2015. Planned for later in the day was a sale of up to 3 billion euros in inflation-linked securities maturing in July 2018.

There is concern among investors, nonetheless, about the election. In three days, voters will choose from among 10 presidential candidates in the first round of voting. On May 6 the final election will be held, pitting the winners of the April vote against each other.

Socialist candidate Francois Hollande has been leading President Nicolas Sarkozy in the polls, and although Hollande has said he would meet existing deficit reduction targets, his balanced budget projections are for a year after Sarkozy’s. In addition, Hollande has proposed an increase in the minimum wage as well as a tax on personal earnings of more than 1 million euros at a rate of 75%.

Spanish yields inflicted pain as well, with yields on 10-year benchmark bonds averaging 5.743%. In January the yield was 5.403%. All told, Madrid sold 2.54 billion euros of bonds.

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