December 6, 2023

French Borrowing Costs Edge Upward

The worries across Europe helped send the euro to its lowest in more than a year, to $1.279 from $1.294 late Wednesday in New York. European stocks were also down in late afternoon trading.

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.

Separately, the European Financial Stability Facility, the bailout vehicle for the euro zone, sold €3 billion of three-year bonds priced to yield about 1.77 percent. The sale, which had been planned for November before market turmoil led to its postponement, “met with orders of €4.5 billion from investors around the world,” the fund said.

Francis Yared, an interest rate strategist with Deutsche Bank in London, described the French auction as “mixed” and said the E.F.S.F. auction had been “executed smoothly,” though he said the market’s verdict would not be completely clear for a few days.

Attention was focused more 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 risk alienating the International Monetary Fund and the European Union at a time that the government is looking for their help.

E.U. officials in Brussels warned again Thursday that Hungary must guarantee the central bank’s independence. “Now it’s really for the Hungarian authorities to decide how they want to reassure their international partners and the markets,” Olivier Bailly, an E.U. spokesman, said.

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.

Yet 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, with the average yield rising to 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. Deutsche Bank estimates that euro zone governments have redemptions and coupon payments totaling €486 billion in the first quarter of the year, while banks must redeem about €214 billion.

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.

France’s 10-year bond yield, at 3.32 percent, is well above Germany’s 1.88 percent, as well as that of other AAA-rated euro nations including Finland’s 2.32 percent and the Netherlands’ 2.25 percent. By way of comparison, the United States’ 10-year bonds were trading to yield 2 percent, and Japan’s were at 0.98 percent.

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.

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European Central Bank Picks Belgian as Top Economist

Mr. Praet, a former economist at the International Monetary Fund who has been a member of the central bank’s executive board since June, will succeed Jürgen Stark as head of the economics department. Mr. Stark resigned at the end of 2011 because he had opposed the bank’s intervention in sovereign bond markets.

The appointment of Mr. Praet, 62, is part of a significant shift in top management at the central bank that could lead to a slightly less hard-line approach by the institution with the most direct control over the fate of the euro.

Jörg Asmussen, a former top-ranking official in the German Finance Ministry, moved to the central bank effective Jan. 1. Benoît Coeuré, former deputy director general of the French Treasury, also joined the six-member executive board at the beginning of the month, succeeding Lorenzo Bini Smaghi of Italy.

Both Mr. Asmussen, 45, and Mr. Coeuré, 42, were said to have coveted the economics portfolio, and the choice of Mr. Praet appears to have been a compromise. A spokesman for the German Bundesbank declined to comment on the appointment.

The head of the economics department briefs the bank’s governing council on the state of the euro zone economy. That person can play an important role in setting monetary policy. Before the tenure of Mr. Stark in the economics department, it was overseen by Otmar Issing, a forceful personality who played a crucial role in ensuring that the bank focused on fighting inflation above all else.

The views of Mr. Praet, the former executive director of the National Bank of Belgium, are not well known, but he is unlikely to be as militant on inflation as his predecessors.

In any case, the economics position is not as influential as it once was, said Marie Diron, a former central bank staff economist who now advises the consulting firm Ernst Young.

In part that is because the governing council, which includes chiefs of national central banks, has a number of other members with economics degrees — not least Mario Draghi, who took over as president in November. Mr. Draghi has a doctorate in economics from the Massachusetts Institute of Technology.

The chief economist “is less powerful and less determinant than he might have been five years ago,” Ms. Diron said. “The president and other members are able to really provide quite deep economic insights, and there is not so much reliance on the chief economist.”

Mr. Asmussen’s portfolio will include responsibility for the central bank’s relations with European governments. He played a similar role at the German Finance Ministry and has been a main figure in negotiations on how to deal with the sovereign debt crisis. Mr. Coeuré will be responsible for market operations, which include interventions in bond markets.

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