June 7, 2012 / 9:53 AM / 5 years ago

UPDATE 1-French bond yields hit record low at auction

By Alexandria Sage

PARIS, June 7 (Reuters) - France's borrowing costs fell to record lows at auction on Thursday, with investor appetite soaring for the country's relatively safe-haven bonds amid the worries over Spanish debt that have rattled peripheral markets.

It was a sign that investors are clearly viewing France as part of the euro zone's core economies, despite weaknesses and political questions.

The yields on France's 10 year-, 15-year- and 50-year bonds, known as OATs, fell to new lows, said Agence France Tresor, on a day where strong demand for Spanish debt brought some needed relief in the euro zone crisis.

Investors have cast aside initial concerns over the recent presidential election of Socialist Francois Hollande, even as his pro-growth, tax and spend platform has led the EU to warn that it could overburden France's social welfare system.

A day after the European Central Bank dashed hopes that it would take near-term action o n the smoldering debt crisis, investors co ntinued to seek re fuge in th e relative security of French debt.

The yield on France's benchmark 10-year bond fell to a low of 2.46 percent. That was below the 2.96 percent at the last auction of the same maturity on May 3 and the low of 2.91 percent recorded on March 6, 2012.

The yield on the 3.5 percent 15-year bond fell to 2.90 percent, below the 3.46 percent when last auctioned April 4, 2012 and below the 3.00 percent low recorded on Sept 7, 2010.

Moreover, the yield on the rarely-auctioned 50-year bond due in 2060 fell to 3.27 percent, lower than the 3.34 percent registered on Nov. 4, 2010.

AFT sold a total of 7.836 billion euros of debt , at the top of its 7-8 billion target range announced ahead of the auction. Investors put in total bids worth 16.5 billion euros.

In a sign of firm investor demand, b id to cover ratios ranged from 1.943 for the 15-year OAT to 2.389 for the 7-year OAT due in 2019.

"The reduction in yields since time of last issuance emphasises the strong performance of France in recent weeks as the crisis has escalated - although a slightly weak set of bid/covers," said Rabobank rate strategist Lyn Graham-Taylor.

Graham-Taylor noted that investors are grouping France more in line with Germany, but with more attractive yields.

SPANISH SALE

With dark clouds having settled over the euro zone economy in recent weeks, hopes grew on Thursday that Europe might finally find a means to shore up Spain's banking sector and avert a deeper crisis.

Spain met strong demand for an auction of medium- and long-term bonds earlier on Friday, with lower yields than at recent sales.

Last week the yield on France's 10-year OAT fell to a euro-era low, reflecting demand for French paper in light of near-zero yields in Germany.

Earlier this year, the ECB injected over 1 trillion euros into the euro zone's banking system, a cash infusion that helped push down French yields, especially on the short end.

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