France’s latest bond offering, conducted just ahead of next week’s budget announcement, has been met with strong investor appetite, providing a much-needed win for Prime Minister Michel Barnier’s government, Bloomberg reports.
The Treasury raised €12 billion (US$13.2 billion) from the sale, exceeding the maximum amount sought. This successful offering comes amidst a period of significant political instability and concerns over the country’s financial future.
The demand for the debt, split between maturities ranging from 10 to 30 years, was 2.5 times larger than the amount sold, demonstrating continued investor confidence in France’s ability to manage its debt. This mirrors the strong demand seen at the two most recent sales of similar maturities.
However, the success of the sale comes against a backdrop of significant challenges. France has been embroiled in political turmoil since President Emmanuel Macron announced snap elections in June, hindering efforts to stabilize the country’s finances. The premium France must pay to borrow versus its peers has risen, prompting some international investors to pull out of French bonds.
The government has announced plans to slash spending by €60 billion to bring the budget deficit to 5% of economic output. However, the market remains apprehensive, with France’s public finances deteriorating rapidly and the government lacking a parliamentary majority to approve the budget. Barnier will likely be forced to bypass a vote through constitutional measures, increasing the risk of no-confidence motions that could lead to his government’s downfall.
The fiscal gap is projected to widen to 6.1% of output this year, exceeding the European Union’s threshold. The additional yield demanded by investors for French bonds compared to safer German bonds is nearing levels last seen during the euro-area debt crisis more than a decade ago.
Despite the significant challenges, Thursday’s bond sale marks another successful offering without major setbacks. It follows a similar trend from previous long-maturity debt sales, with strong demand exceeding issuance.
Investors will now turn their attention to upcoming credit rating reviews of France. Fitch Ratings will review France’s credit rating on October 11th, followed by Moody’s Ratings on October 25th and S&P Global Ratings on November 29th. Currently, Fitch and S&P rate France at AA- with a stable outlook, while Moody’s assigns an Aa2 rating, also with a stable outlook.
