(News Bulletin 247) – The Agence France Trésor, responsible for raising debt on the markets to finance the needs of the State, successfully auctioned a total of 10.5 billion euros of bonds this Thursday. Investor demand remained high, despite the political context.

The market continues to appreciate French debt. On Thursday, the Agence France Trésor issued 10.5 billion euros on the financial markets, and investors responded in force just days before the second round of legislative elections.

The French state raised money through four loans, which will have to be repaid between 2033 and 2066, which allowed it to recover 10.5 billion euros, the top of the target range.

The operation is routine, as France must raise at least 285 billion euros in the medium and long term in 2024 to cover both the deficit and borrow to repay previously issued loans that are coming to maturity.

Demand still strong

Investor demand for French debt is, however, being viewed more in the context of the dissolution of the National Assembly. The decision has put pressure on French interest rates, which have diverged sharply from the European benchmark, the German rate, on the bond market.

The bond market is where investors trade debt securities that have already been issued, and which strongly influences the rates at which France issues its loans.

On Thursday, investors responded with demand more than twice as high as supply for each of the four loans, according to the AFT table summarizing the operation. This is a proportion in line with previous loans. The Agence France Trésor does not comment on the process.

For example, France borrowed 3.6 billion euros to be repaid in 10 years, at a rate of 3.23%. This rate is fixed and France will pay interest at this rate for this loan regardless of the developments on the bond market. During the last loan at this maturity, in May, the rate was 3.03%.

“The yield always attracts investors, it is a fact that does not change” explained to AFP on Wednesday François Rimeu, senior strategist at Crédit Mutuel AM.

Tensions are decreasing

Investor uncertainty over central bank policy in Europe and the United States, as well as a rise in American rates after Donald Trump’s lead in the recent American presidential debate, led the French benchmark, the 10-year rate, to rise to more than 3.30%, its highest level since November.

On Thursday, around 2:20 p.m., the French 10-year rate on the bond market was around 3.27%, a slight increase compared to the previous day (3.25%), a movement similar to its German equivalent (2.60%).

The gap between the German rate and the French rate has narrowed significantly since the start of the week, following the results of the first round of the legislative elections.

While the gap had reached 0.84 percentage points on Friday, the highest level since 2012 and the euro crisis, it fell to 0.67 percentage points on Thursday.

However, it remains well above its pre-dissolution levels, below 50 basis points (0.5 percentage points).

In another sign of easing tensions, the Paris Stock Exchange rebounded by 2.8% over the week compared to its closing on Friday, with investors now considering it less likely that the National Rally will obtain a majority in the National Assembly.

(With AFP)