France sees borrowing costs fall at bond auction

AP News
Posted: Jun 07, 2012 7:18 AM

France's government saw its borrowing rates drop in an auction of long-term bonds Thursday, an indication of investor confidence in the country despite concerns over the financial stability of some of its neighbors, such as Spain.

The treasury raised a total (EURO)7.8 billion ($9.7 billion) in the auction, with (EURO)3.5 billion of that coming from the issue of 10-year bonds. It paid an interest rate of 2.46 percent for the 10-year notes, down from 2.96 percent the last time it auctioned such bonds a month ago.

Critics of France's new Socialist government have questioned whether it can bring down the country's high debts and deficit as promised, and markets occasionally waver on worries about France's long-term financial prospects. But when compared with some of the shakier economies in the 17-country eurozone, such as Spain, French debt stands out as a relatively safe bet for investors.

The overall sale Thursday was on the high end of government expectations of between (EURO)7 billion and (EURO)8 billion, and demand was strong, an indication of investor confidence.

The rate on 7-year bonds was 1.92 percent, compared with 2.48 percent the last time 7-year bonds were sold in March. The yield on bonds maturing in 2026 fell to 2.9 percent from 3.46 percent in April. The treasury also sold bonds maturing in 2060 at a rate of 3.73 percent.

"It's good news," said Benoit de Broissia, fund manager at KBL Richelieu. "France's refinancing conditions have improved in the last month and it becomes concrete in this auction today."