France borrowing costs rise on auction

PARIS - Agence France-Presse

French President Sarkozy speaks at an election campaign rally on the French Indian Ocean island of La Reunion. AFP photo

France raised 8.4 billion euros ($11 billion) in an auction of medium and long-term debt yesterday, paying higher rates as eurozone debt concerns pressured weaker members such as Spain.

The French debt management agency said it had to pay investors in 10-year government bonds a return of 2.98 percent, up from 2.91 percent on March 1.

The rates paid on five and 14-year bonds also rose modestly, while that on 39-year bonds dipped.
France is in the midst of a presidential election, in which the state of public finances is a central concern.

Spain was forced to pay sharply higher rates at a bond auction on Wednesday, its first debt sale since a tough austerity budget last week, in a sign of fresh concerns over its ability to bring its strained finances under control.

Those concerns continued to be felt on Thursday as the difference between the yield on Spanish bonds and the benchmark debt issued by Germany, the eurozone’s strongest economy and its paymaster, widened to levels last seen in December.

Around midday, the yield -- the return paid to investors -- on the Spanish 10-year government bond rose to 5.800 percent, up from 5.674 percent Wednesday, while the 10-year German bond fell to 1.750 percent from 1.787 percent.

The spread between the two bonds of 405 basis points (4.05 percentage points) was the highest since December although still well short of the 460-480 levels seen at the height of the eurozone debt crisis late last year.

As the pressure on Spain mounts, despite a tough austerity budget presented last week, Italy also saw its borrowing costs rise -- to 5.480 percent from 5,354 percent.

After the European Union and the International Monetary Fund bailed out Greece, Ireland and Portugal, concerns are growing again that Spain and perhaps even Italy could struggle and might need help too.

“The spreads, which reflect the degree of investor confidence (in a country) are clearly widening again and the short-term outlook is not particularly positive,” BNP Paribas analysts said in a client note.