December 3, 2023

French Borrowing Costs Nudge Upward in First Bond Sale of New Year

The French Treasury sold
€4 billion, or $5.1 billion, of 10-year bonds at an average yield of 3.29 percent, up from the 3.18 percent it paid at the last such auction in early December. Investors bid for 1.64 times the amount of the securities on offer.

The Treasury also sold €6.6 billion of longer-term debt: €2.2 billion maturing in 2023, €2.2 billion maturing in 2035, and €2.2 billion due in 2041.

The yield on the existing French 10-year bond barely moved, slipping 3 basis points to 3.28 percent. That compares with the 1.88 percent yield on the German 10-year, considered the safest in Europe. A basis point is equal to one-hundredth of a percent.

The euro was trading at $1.2843, down from $1.2943 late Wednesday in New York, and the lowest in more than a year. European stocks also were trading down at midday.

Market attention was focused more widely Thursday: on Italy, where shares of Unicredit, the largest Italian bank, were briefly suspended after falling by their limit for a second day in a row; and on Hungary, where changes by the center-right government to laws governing the Hungarian central bank risks alienating the International Monetary Fund and the European Union at a time that it is looking for their help in restoring market confidence.

On Thursday, Tamas Fellegi, the Hungarian official who is conducting talks with the E.U. and I.M.F., sought to soothe concerns ahead of a debt auction, saying the government was ready to negotiate.

But the market skittishness remained in evidence, as the Hungarian government sold only 35 billion forint, or $141 million, of the 45 billion forint in one-year Treasury bills offered Thursday, despite an average yield of 9.96 percent — up sharply from the 7.91 percent it paid last month, according to Bloomberg News.

France’s debt sale, which came on the heels of a big German auction Wednesday, marked one of the first major tests of market demand in the new year for the bonds of embattled euro zone governments. In all, euro zone governments need to sell more than €250 billion of debt in the first quarter, and euro zone banks are also lining up to roll over debt.

France’s debt carries the coveted AAA mark at all of the major credit ratings agencies, but it is seen as having the most fragile finances among top-rated governments. Standard Poor’s last month warned that France’s rating was at risk after European leaders’ December effort to bolster the euro zone failed to convince investors. Moody’s Investors Service has also said it would review all European Union countries, including France, for a possible downgrade in the first quarter.

The United States has already lost its AAA rating at one agency, with Standard Poor’s cutting it in August. S.P. said then that political dysfunction in Washington and slow growth had become a hindrance to addressing the country’s financial problems.

The French president, Nicolas Sarkozy, is facing a difficult re-election battle and has announced austerity measures in an effort to convince ratings agencies that France’s finances are on sustainable footing.

Mr. Sarkozy is scheduled to meet Monday with the German chancellor, Angela Merkel, to confer on strategy for overcoming the euro crisis.

The European Central Bank, which has been widely criticized for refusing to directly support struggling euro zone governments, on Dec. 8 did announce a major new initiative to help banks, saying it would provide unlimited three-year credit on easy terms against a wide range of collateral.

Liz Alderman contributed reporting.

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