PARIS (Reuters) - French borrowing costs fell at a medium-term debt auction on Thursday that drew firm investor demand as concerns about Spain sent buyers toward less risky bonds, with the yield on the five-year benchmark paper hitting an all-time low.
Debt management agency Agence France Tresor (AFT) sold 8.432 billion euros of fixed-rate, medium-term bonds know as BTANs, at the top end of a target range of 7-8.5 billion euros.
In the first bond auction since the Socialist Party won a controlling majority in parliament, investors put in total bids worth 20.8 billion euros, more than double the amount on offer. Yields on all four lines on offer were lower than the last time the bonds were auctioned.
AFT also sold 1.44 billion euros of long-term, inflation-linked bonds in a second auction, with demand of nearly three times the amount on offer and yields also lower.
France has seen its borrowing costs fall to historic lows over the last month as Spain has become engulfed by Europe’s debt crisis, prompting investors to seek the relative safety of French debt. The promise of richer yields than those offered by German bonds has also helped fuel appetite for French paper.
“French funds that were previously held in Spanish or Italian debt have been repatriated over the last two or three months back into France,” Rabobank strategist Lyn Graham-Taylor said. “We believe that’s helped their yields come down.”
In contrast to across-the-board lower yields in the French auction, Spain had to pay dearly to sell 2.2 billion euros in medium-term bonds to investors at an auction on Thursday, with its five-year paper hitting a 15-year high.
In the French auction, the yield on the five-year benchmark bond maturing in February 2017 fell to record low of 1.43 percent, down from 1.72 percent at the May 16 auction.
AFT sold 3.337 billion euros of the bond and investor demand topped 7.2 billion euros, giving a bid to cover ratio of 2.2.
AFT also sold 2.775 billion euros of its BTAN maturing in September 2014 at a yield of 0.54 percent, down from 0.74 percent the last time it was auctioned on May 16 and with bid-to-cover of 2.2 times.
Some 1.220 billion euros of the July 2015 bond were sold at a yield of 0.83 percent, down from 1.51 percent at the last such sale on January 19. Its bid to cover ratio was 3.3.
AFT also sold 1.1 billion euros of its February 2016 BTAN at a yield of 1.05 percent, down from 1.40 percent at an April 15 auction. Its attracted a bid-to-cover of 2.98.
So far this year France has issued 116 billion euros of medium and long-term debt or 65 percent of its 2012 issuance program of 178 billion euros net of buy-backs.
Reporting by Leigh Thomas; Editing by Catherine Evans