French debt costs rise at bond sale as AAA decision looms

INTERNATIONAL. France sold 7.96 billion euros (US$10.2 billion) of debt, with borrowing costs rising in its first bond auction of the year as credit companies threaten to cut the nation’s AAA rating.

The government sold 4.02 billion euros of benchmark 10-year bonds at an average yield of 3.29 percent, from 3.18 percent on December 1. France, which also auctioned 2023, 2035 and 2041 securities, had aimed to sell a maximum of 8 billion euros. French 30-year bonds pared their declines.

“This is proving to the market again that they can still raise finance without too many difficulties,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “There’s still the threat of a downgrade hanging over France and until we get that situation cleared up you can’t signal the all-clear and it’s still going to be vulnerable.”

France has the biggest debt burden of the six top-rated euro nations, at 85% of gross domestic product. The extra yield investors demand to hold French bonds instead of benchmark German bunds rose to 204 basis points on November 17, the most since 1990, as concern deepened Europe’s debt crisis was spreading.

While the gap was 145 basis points at 12:24 p.m. Paris today, it compares with a premium of 44 basis points for AAA rated Finland and 37 basis points for the Netherlands.

The euro extended its decline against the dollar, reaching the weakest level in 15 months, after French borrowing costs rose. The 17-nation common European currency was 0.8% weaker at $1.2831 against the dollar at 12:10 p.m. London time.