French yields fall, demand firm at bond auction

PARIS Feb 2 (Reuters) - French bond yields fell on Thursday amid strong demand at France's first auction of long-term fixed-rate bonds since losing its triple-A credit rating last month, in a boost for sentiment on euro zone debt.

Debt management agency Agence France Tresor (AFT) said it had sold 7.962 billion euros of long-term OAT bonds, at the top of a 6.5-8.0 billion euro target range indicated ahead of the auction. Investors put in bids worth over 19 billion euros.

With banks awash with new liquidity from the European Central Bank, France has managed to sell bonds at lower rates and attracted solid investor demand in recent weeks at shorter-term bond auctions even after Standard & Poor's stripped it of its top-notch AAA status on Jan. 12 in a mass downgrade of nine euro zone countries.

The auction coincided with a healthy sale of medium-term Spanish debt, in a sign that long-running concern over the euro zone debt crisis is not sapping demand for government bonds.

The AFT made its first sale of a new 10-year bond due April 2022 with a coupon of 3.00 percent at a yield of 3.13 percent, down from 3.29 percent at the last auction of a 10-year OAT on Jan. 5. The new issue attracted bids worth 1.7 times the bonds on offer and 5.7 billion euros' worth was sold.

The AFT also sold 1.011 billion euros of its October 2018 bond offering a yield of 2.44 percent, down from 3.27 percent the last time it was auctioned on March 8, 2011. Bids surpassed demand by far with a so-called bid-to-cover ratio of 4.3.

In the last line on offer, the AFT sold 1.253 billion euros of its October 2020 bond at a yield of 2.91 percent, down from 3.64 percent the last time it was auctioned on May 10, 2011. The issue drew a bid-to-cover ratio of 4.

For details of the auction