French Prime Minister Michel Barnier. — Bloomberg
Paris: France is selling bonds just days before Prime Minister Michel Barnier unveils detailed plans to control the government’s ballooning deficit and win back investor confidence.
The Treasury plans to raise as much as 12bil or about US$13.3bil by offering four notes that mature in 10 to 30 years.
Government officials speaking on condition of anonymity this week outlined around 60bil in savings to bring the budget shortfall to 5% of economic output.
But the market is on edge as France’s public finances have sharply deteriorated in recent months and the government lacks a majority in parliament to approve the budget that’s due next week.
Barnier will likely have to use constitutional tools to bypass a vote on the bill, a move that increases the likelihood of no-confidence motions to topple his government.
The fiscal gap is forecast to widen to 6.1% of output this year, more than double the threshold demanded by the European Union.
Meanwhile, the extra yield investors demand to own French bonds over safer German notes is hovering close to levels last seen during the euro-area debt crisis more than a decade ago.
Still, the nation managed to sell new bonds without major setbacks recently.
Bids across the previous two sales of long-maturity debt were 2.6 times and 2.3 times the total amount sold, broadly in line with this year’s average.
“Looking at the auctions in June and July, France had no problems in selling bonds,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S, who expects the sale to go well again.
Back in July, when anxiety over the fiscal outlook was at its peak, officials reduced their issuance target to 10.5bil from 12bil in the previous month. They increased the goal again in September as volatility eased.
Investors’ attention will later turn to a cascade of reviews on France’s ratings, with Fitch Ratings on Oct 11, Moody’s Ratings on Oct 25 and S&P Global Ratings on Nov 29. — Bloomberg
