December 5, 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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Stocks Slip as Italian and Spanish Bond Yields Rise

Mario Monti, an economist with a long résumé that includes high-level posts with the European Union, was appointed as Italian prime minister over the weekend after Silvio Berlusconi stepped down. In Athens, Lucas Papademos, a former central banker, was beginning to put his stamp on the Greek government.

The changes of government were intended in part to demonstrate to investors that embattled euro zone nations were serious about solving their problems. While European stocks rallied in early trading, the euphoria was short-lived.

In early afternoon on Wall Street, the Standard Poor’s 500-stock index was down 1 percent, and the Dow Jones industrial average was 0.7 percent lower. The Nasdaq composite was down 0.8 percent. On Friday the S. P. gained nearly 2 percent.

In Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 1.6 percent, while the FTSE 100 index in London was down 0.5 percent.

The market’s skepticism was reflected in the outcome of the Italian bond auction. The Italian Treasury on Monday sold 3 billion euros, or $4.1 billion, of five-year bonds priced to yield 6.3 percent — up nearly a full percentage point from the yield it paid at a similar auction last month, and the most Italy has had to pay to move such securities since June 1997, according to Bloomberg News.

On the secondary market, the yield on Italy’s 10-year bonds, which had fallen back at the end of last week after breaching the critical 7 percent threshold, rose more than 20 basis points to near 6.7 percent, a level that makes it increasingly difficult for the country to straighten out its finances amid anemic economic growth. (A basis point is one-hundredth of a percent.)

Ten-year bond yields in Spain, another troubled euro zone economy, rose above 6 percent for the first time since August, when a spike in borrowing costs first prompted the European Central Bank to intervene to push down yields by buying Spanish bonds.

The sharp move upward in the Spanish yield might be a sign of things to come, analysts said. The Spanish economy may be contracting in the current quarter, worsening Spain’s budget deficit and the position of its banks.

The country holds elections on Sunday, but whoever takes over power will have little choice but to introduce more austerity measures, analysts said.

Despite the European sovereign debt crisis and the threat it poses to economic growth globally, some analysts believe the United States markets at least are poised for a rebound.

Jeffrey D. Saut, chief investment strategist at Raymond James in St. Petersburg, Fla., noted that for the 445 of the S. P. 500 companies that had reported results through Thursday, profits were up 22 percent from a year earlier, while revenues were up almost 12 percent.

Selling on Wall Street is unlikely to go very far “because earnings are just too good,” he said. Assuming the United States does not dip into recession, “I think you’ll see people outside of the United States shoveling money into stocks in this country.”

The dollar rose against most other major currencies. The euro fell to $1.3622 from $1.3751 late Friday in New York, while the British pound fell to $1.5899 from $1.6066. The dollar rose to 0.9070 Swiss francs from 0.8999 francs. But the dollar fell against its Japanese counterpart, slipping to 77.01 yen from 77.17 yen.

Asian shares were mostly higher. The Tokyo benchmark Nikkei 225 stock average rose 1.1 percent. The Sydney market index S.P./ASX 200 rose 0.2 percent, and in Hong Kong, the Hang Seng index gained 1.9 percent.

Graham Bowley contributed reporting.

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