BLBG:France Joins Spain to Defy Moody’s With 14.3 Billion-Euro Debt-Sale Plan
France and Spain plan to sell as much as 14.3 billion euros ($18.7 billion) in bonds today, defying concern about a second bailout for Greece and after Moody’s Investors Service cut ratings for some European nations.
France plans to sell as much as 8.5 billion in two- three- and five-year bonds, while Spain aims to sell a maximum of 4 billion euros in securities maturing in January and July 2015 and October 2019. France is also auctioning as much as 1.8 billion euros of index-linked bonds.
The European Central Bank’s three-year lending program for banks, dubbed LTRO, may help demand for the auctions, which come three days after Moody’s cut the ratings of six European nations including Spain and revised its credit outlook on France to “negative.” European finance ministers postponed until at least Feb. 20 a decision slated for yesterday on Greek aid totaling 130 billion euros.
“The market is ready to take these” auctions, said Padhraic Garvey, head of developed-market debt at ING Groep NV in Amsterdam. “The most dominating positive is that real-money investors are buying risk.”
In a bid to address the region’s banks’ funding woes, the Frankfurt-based ECB loaned euro-region banks a record 489 billion euros for three years on Dec. 21, adding to the market’s liquidity. The central bank is slated to make another such offer to banks on Feb. 28.
“The market is still seeing support ahead of the next three-year LTRO,” said Harvinder Sian, an interest-rate strategist at Royal Bank of Scotland Group Plc in London.
Previous Auctions
Yields on French benchmark 10-year bonds fell 14 basis points since the start of 2012 to 3.01 percent yesterday even after Standard & Poor’s cut France’s AAA rating by one level on Jan. 13. Spanish yields rose 5 basis points to 5.44 percent.
French debt returned 1.5 percent since its ranking was cut, according to Bank of America Merrill Lynch data. Treasuries earned 4.3 percent from Aug. 5, when S&P cut the U.S. by one level to AA+, through Dec. 31, the data show.
Recent European auctions have seen the benefits of the ECB loans. On Feb. 2, France sold 7.96 billion euros of six- eight- and 10-year debt, the top of its planned range, while Spain sold 4.56 billion euros of bonds maturing in July 2015, October 2016 and January 2017, just above its target for the sale.
Demand for France’s benchmark 10-year bond was 1.71 times the amount sold. Spain saw demand for 1.63 times the amount of 2015 notes sold and 3.57 times the amount of 2016 notes.
France has trimmed its 2012 debt sales plan as President Nicolas Sarkozy, who faces an election in less than three months, seeks to cut the country’s budget deficit. France will require 177.9 billion euros in financing this year, down from the 182 billion euros estimated on Sept. 28, Agence France Tresor, the country’s debt-management body, said in December.
Spanish Banks
Spanish banks’ average borrowings from the ECB rose to 133.2 billion euros in January, the highest on record, data released on Feb. 14 by the Bank of Spain showed.
The LTRO-led demand for the nation’s bonds explains why yields haven’t risen even as the country missed last year’s budget deficit target, Sian said. Prime Minister Mariano Rajoy has to cut the nation’s shortfall by about 45 percent this year while fighting a second recession in two years.
Still, the ECB can’t sustain demand for European bond issues indefinitely, some analysts noted.
“The reaction of markets at this stage has been an artificial one, because we had liquidity effects helped by a number of decisions, notably by the ECB that can’t be eternally repeated,” Philippe Dessertine, a professor of finance at the University of Paris West Nanterre, said on TF1 television.
There’s a risk we’ll see a “progressive deterioration of demand for French public debt that will be felt bit by bit,” he said on the Paris-based TV channel on Feb. 14.
To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net Angeline Benoit in Madrid at abenoit4@bloomberg.net
To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net
