French Sovereign

France was sensible to wait for the needle to return to the middle of the Eurozone volatility seismograph before leading a glorious French flypast of deals across asset classes this week.

France sold a new 30 year benchmark on Tuesday— its first syndication since February 2011. The bond was priced with little concession to the outstanding OAT curve.

France, Cades and the State of North-Rhine Westphalia have mandated banks to lead manage euro benchmarks as an agreement on the Cyprus bailout provided a good enough backdrop for SSAs to get stuck into the euro market.

The Agence France Trésor (AFT), which is responsible for the issuance of French sovereign debt, is rumoured to be about to appoint the country’s executive director at the World Bank as its CEO following the current head Philippe Mills’s appointment to run a new French local government financing body.

The Dutch State Treasury has plumped for a three year auction next week to kick off its long term funding for the year. Strong appetite for risk could mean international demand is lacklustre, but the domestic investor base will carry the auction through, said analysts.

The EFSF has despatched an RFP to dealers for a trade which is anticipated to come next week, and bankers expect the EU to follow with a benchmark after that. The two borrowers are among the few SSA names with much funding left to do before the end of the year.

Germany, Italy and France started off a busy week of auctions on Monday with €18.87bn worth of short term debt auctions. Investors maintained the eurozone divide between periphery and core, with yields edging up in Italy and down in Germany, and bankers expect this to trend to continue throughout the summer.

Spanish bond yields have leapt up on Thursday after a difficult auction of short to medium term debt. The auction allowed Europe’s peripheral sovereign debt crisis to raise its ugly head in a week where other sovereign credits have been issuing at low and even negative yields.

Portugal’s plan to muscle its way back into the capital markets via its euro medium term note (EMTN) programme has been met with derision by dealers. However, the sovereign managed to achieve its lowest six month treasury bill yields in nearly two years suggesting there may be growing appetite for the credit as yields tumble for better-rated names.

Money market funds buying European government debt facing a drought in yield should turn their attentions to non-triple-A rated commercial paper, analysts have suggested. But with a number of split-rated borrowers such as Belgium, France and now the EFSF offering negative yields in money market instruments, fund managers’ quests for yield could be hindered.

The EFSF has become the latest issuer to move into negative yields in its short dated instruments. But despite the historically low rates the rescue fund is still not regarded as a safe haven.

Région Limousin sold its inaugural medium term note this week as it joined a growing trend among French regions to fund via the capital markets, with almost half the historical private placement volume of this group of issuers sold in the last 12 months.