A day after the European Commission opened a file against France for its large deficit, the country has faced its first litmus test in the markets, successfully. This Thursday’s auction is a good thermometer to test the appetite of investors after the commotion generated by the early elections. And, although debt yields and the increase in the first risk have raised the ghosts of the debt crisis, investor demand remains stable.
The French Treasury has raised 10.5 billion in medium and long-term debt. Sales of French bonds throughout the year have ranged between 12,000 and 13,000 million. Although demand has not been altered, the Treasury announced a more modest objective, aware of the turmoil in the market. Demand has remained in line with previous placements. The coverage ratio was 2.41 times bid, in line with the 2.63 and 2.37 times of previous auctions, operations that were held in a calmer political climate. “The auction was globally in line with previous ones. If we focus on five-year demand, this was a little stronger than usual, while longer maturities were slightly weaker,” Natixis points out.
In line with the behavior of the secondary market, debt yields have experienced a rebound. For the three-year reference (3,308 million), the interest rate has risen 20 basis points, going from 2.84% to the current 3.04%. A similar increase has occurred in the rest of the periods. In five-year debt, France has placed 2,379 million at 3.03%, compared to 2.76% in the previous bid. In six-year bonds, 3,026 million have been sold at 3.01%, from the previous 2.73%, and the 1,782 million have corresponded to eight-year debt for which the profitability has been 3.05%. The avalanche of paper has been reabsorbed without problem. The yield on the one-year bond rises three basis points, to 3.22%, while the risk premium remains stable at 77 basis points, a 2017 high.
Spain raises 5,472 million
In parallel with the issuance of France, the Treasury has sold 5,471.5 million in medium and long-term debt at higher rates. The amount raised is on the edge of the maximum set as the objective: 5.5 billion. With this Thursday, the agency dependent on the Ministry of Economy closes the first semester.
The demand has stood at 9.3 billion. That is, it has not doubled the supply as in previous operations. In the five-year reference, the marginal interest has gone from 2.883% to 3.005%. In debt with a maturity of seven years and 10 months, the required rate has been 3.121%, higher than the previous 3.106%. The list is closed by the 10-year reference which, in addition to having a coupon of 3.45%, has a profitability of 3.351%.
The Treasury’s 2024 financing strategy foresees new financing needs of around 55,000 million for this year, which represents a reduction of 10,000 million compared to those of 2023. For its part, the expected gross issuance will amount to 257,572 million of euros, 2% higher than in 2023 due to the increase in amortizations.
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