Positive French bond sale despite downgrade

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Standard and Poor’s downgraded France from a triple A-rating to AA+ on Friday. There were concerns that this could have an effect on the French bond sale today. However France has managed to sell €8.5bn of 12, 25 and 52-week bills in debt auction, slightly less than €8.7bn target. 12-week bills at 0.175pc, 25-week bills at 0.295pc and 52-week bills at 0.42pc. Investors are obviously not concerned by France's ability to pay debt in the near future.

On the other hand, Greek’s fears of default have increased after the unexpected collapse of talks over a debt swap deal with its private creditors on Friday.

A crucial second, €130bn rescue loan from the EU, IMF and ECB is dependent on reaching an agreement on a bond swap with creditors that are being asked to take a voluntary 50pc loss on their Greek government bonds. Greece depends on that loan to avoid defaulting.

One of the main fears is the fact that the vast majority of Greek debt is held by European banks, which have little insurance on their exposure.

Lucas Papademos, the Greek prime minister, said “we are fully aware of how critical the situation is. Until these negotiations are completed, we face dire economic dangers.”

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