(Bloomberg) -- France’s final bond offering ahead of next week’s budget announcement went off without a hitch, giving Prime Minister Michel Barnier’s new administration a much-needed win.
The Treasury raised €12 billion ($13.2 billion) from a sale of debt on Thursday — in line with the maximum amount that the government said it was seeking. Appetite for the debt, which was split between maturities ranging from 10 to 30 years, was 2.5 times larger than the amount sold, broadly matching demand seen at the two most recent sales of similar maturities.
France has been grappling with political turmoil at home ever since President Emmanuel Macron announced snap elections in June. That upheaval has hindered efforts to get a grip on the country’s finances, boosting the premium that France must pay to borrow versus some of its peers and prompting some overseas investors to ditch French bonds.
“France is not out of the woods yet and the budget presentation is next week, but Prime Minister Barnier can breathe a sigh of relief that the sale went without a hitch,” said Evelyne Gomez-Liechti, a strategist at Mizuho International Plc.
Government officials speaking on condition of anonymity this week outlined around €60 billion in savings to bring the budget shortfall to 5% of economic output. But the market remains on edge as France’s public finances deteriorated sharply in recent months and the government lacks a majority in parliament to approve the budget. 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, Thursday’s bond sale caps another offering without major setbacks. 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.
Back in July, when anxiety over the fiscal outlook was at its peak, officials reduced their issuance target to €10.5 billion from €12 billion in the previous month. They increased the goal again in September as market volatility eased.
Investors’ attention will now 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. Fitch and S&P have the nation at AA- and Moody’s puts it a notch above at Aa2, all with a stable outlook.
--With assistance from William Horobin.
(Updates with results of auctions.)
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