We would eventually believe that the appetite of investors for French debt is instatible. Despite a public deficit to drift, a colossal debt and a political crisis that never ceases, France has managed to borrow without any difficulty 11 billion euros of 10, 15 and 30 years in the markets on September 4.
Better yet, the demand for investors amounted to 25.9 billion euros, or 2.35 times more than the volume issued by the France Trésor (AFT) agency responsible for placing the tricolor debt.
What reassures the credibility of the French firm, even if it is ultimately a train that arrives on time for experts: “We are never too worried about each award because we know that the France Trésor agency does a great job (…) was more than twice survived,” confirms Besiness Delphine Arnaud, manager/overlay of Rothild Rothild.
“A good payer condition”
In more general terms, France, which has planned to raise a total of 300 billion euros in the markets in 2025, will assume the challenge. As if the political and budgetary context, however far it is ideal, was to the background of the decisions of investors.
However, French obligations retain a correct reputation at this stage. Particularly because “we are a good paying condition that, compared to a long time, has a better debt quality than others,” continues Christopher Dembik. Astères economist, Lucile Bembaron also remembers that historically, France “has always been able to honor its commitments” with its creditors.
The creditors also reinforced by the foundations of the tricolor economy whose growth resists and that is still “the second in the euro zone” with “advantages” most numerous and a better “diversification” compared to some of its relatives, recalls Alexandre Baradez, chief analyst of IG.
Without forgetting the ability of the French State to eliminate the tax: “France is a rich country, with a very high level of savings, a very high inheritance … There is a stock of taxable elements present in an emergency,” continues the expert.
So many elements that lead investors to judge that “France’s debt remains sustainable,” according to Lucile Bemboon. Finally, the ECB, which has the ability to be the last resort to buy debt titles to calm the tensions of the rates. A European umbrella that also strengthens the confidence of our creditors.
A debt that finds makers but that costs more and more expensive
Too much for the positive. However, some disadvantages accumulate: the relationship, although comfortable, between the volume of links requested last week and the volume emitted was slightly lower than that observed during the last similar operations. Above all, oatmeal increased: 3.57% for the title at 10 years (3.27% in July), 4.43% for the age of 30 (against 4.05%) …
Our creditors are not completely insensitive to the turbulence of French political life or the budgetary generosity of the State. In return, therefore, they require a slightly higher risk premium: “France really has no problem to place its role, on the other hand you must pay more,” observes Delphine Arnaud.
As the bond market demonstrates, where the interest rates of French debt have continued to rise in recent months. 10 -year yield is today above 3.45%, compared to around 2.8% a year ago. This now leads France to pay more to finance in markets than in Spain, Portugal or Greece.
For a long time it is perceived as the sick man in Europe, Italy, with its historically high debt (135% of GDP against 114% in France) has managed to reduce it by 20 points in four years. The efforts are welcome by investors if we trust Italian rates (3.46%) that gradually approach French rates. They were even briefly lower on September 9, the day after the fall of the Bayroun government. “What matters for investors is the trajectory of public finances” rather than their situation at this time, underlines Lucile Bembaron. However, “Italy’s trajectory, which shows a primary surplus, seems more controlled.”
French debt competed by Italian and German debt
If we can try to console remembering that France is financed even more cheaper than the United Kingdom or the United States, “it is likely” in the short term “that Italy borrowed at slightly lower rates than France” in a scenario of sustainable political and budget crisis, predicts Christhepher Dembik. And it will not be the only “threat” that will remain in the cost of tricolor debt. Because the shortage of German debt titles that until then pushed investors to resort to French obligations will soon be in ancient history, Germany plans to issue more than 300 billion euros in debt in 2026. and “German rates are also climbing. This could take a capital flight from France because the yields are more interesting,” Lucile Bembaron completes.
“We will not only be in direct competition with the debt of our neighbor of the entire RIN, which, rightly, is perceived as less risky, but also with Italian debt, which is now similar to ours, confirms Christopher Dembik. This will not cause a moment of ‘liz truss’, however, provided that the ECB is monitoring the grain. 2021.
This greater competition can “create tensions” in French rates, abounds Alexandre Baradez, considering “even more necessary the rapid presentation of credible budgetary measures” to reassure markets. In the end, it does not matter that the public deficit returns under the famous 3% in 3, 5 or 10 years, “you just have to give an address to the market,” explains Lucile Bembaron. Otherwise, the debt burden will continue to suffocate the state budget a little more and investors could again sanction France. A vicious circle that worries in the medium term:
“National and strangers have an objective vision of the situation. There is no reason why markets do not sanction us,” adds Alexandre Baradez, for whom “this situation requires real surveillance.” And to warn: “Investors can quickly change their minds (with French debt), nothing is recorded in marble.”
Source: BFM TV
