Investors pay France, Germany to park money short-term
PARIS (Reuters) - Investors effectively paid France on Monday to park their money in the relative safety of the government's short-term debt, the first time the heavily indebted country has been able to raise funds for less than it will have to repay.
Germany, which first sold debt at a profit in January thanks to its role as the euro zone's leading economy and exporter, also borrowed at record low cost on Monday.
In a historic first, France's debt agency said it sold some debt - 13-week and 24-week bills - at negative interest rates, meaning buyers will be paid back less than they invested.
"If negative yields on French debt, albeit on short-dated paper, are not the clearest indication yet that investors perceive France as a relative safe haven, nothing is," wrote Spiro Sovereign Strategy managing director Nicholas Spiro in an investor note.
The lower rates partly reflect cuts last week in the European Central Bank's official interest rates to historic lows. Global stocks fell on Monday and the euro hovered near a two-year low before a euro zone finance ministers' meeting in Brussels to hash out details of their latest efforts to stabilize the currency bloc.
Despite its own record high level of debt, France has been borrowing recently at historically low cost. Investors are rating it as a relatively safe option compared with euro alternatives such as Italy, one of the world's biggest sovereign debtors, or Spain, which has had to seek a bailout for banks left crippled by a property crash four years ago.
Germany is still perceived as the ultimate euro safe haven and investors paid to lend the country 3.29 billion euros for six months on Monday, Bundesbank data showed. They accepted a negative yield averaging -0.034 percent, their lowest ever, in an auction that attracted bids for 1.7 times the amount on offer.
"This is the most negative yield yet for money market instruments," a German finance agency spokesman said.
While Germany's debt equals about 82 percent of gross domestic product, France's new Socialist government expects public debt to hit a record 89.7 percent this year and peak in 2013 at 90.6 percent.
French President Francois Hollande said on Monday that the euro zone's second-biggest economy had flatlined in the first half of 2012. That pushes it to the brink of recession and is keeping unemployment at from a 13-year high.
But in its weekly auction, Agence France Tresor sold its 50-week bill at a record low of 0.013 percent. Last week the AFT auctioned the bill at a yield of 0.163 percent.
The agency sold 7.7 billion euros ($9.5 billion) in short-term debt on Monday, just shy of its expected top range of 7.8 billion.
The 13-week bill was sold at a yield of -0.005 percent, a sharp drop from its previous yield of 0.048 percent. The 24-week bill yielded -0.006 percent, down from 0.096 percent.
Demand for the three bills, known as BTFs, was robust with bids exceeding the debt on sale by ratios ranging from 2.3 for the 13-week bill to 3.2 for the 24-week bill. The 1-year bill had a bid-to-cover ratio of 2.8.
($1 = 0.8126 euros)
(Reporting by Alexandria Sage; Editing by Leigh Thomas/Ruth Pitchford)
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