Last month, poor first-quarter growth figures showed the French economy entering triple-dip recession, while the EU postponed until 2015 the 3% of GDP fiscal deficit target, at the same time increasing pressure on the government of François Hollande to enact structural reforms of in pensions and the labour and product markets.
The impact of all this on French government debt was virtually zero. For months, French government bonds have rallied as investors outside the eurozone cast off doubts about the country’s fundamentals and pile into its paper. In April, France issued 10-year debt at under 2% for the first time ever, offering just 1.94%. By mid May these bonds were yielding just 1.88%. Agence France Trésor had even been able to issue a €4.5 billion 30-year syndicated bond yielding just 3.25% and saw it rally close to 3.11%. These are astonishing yields.
Ambroise Fayolle, chief executive of Agence France Trésor, almost has to stop himself from crowing. "I agree that it has been an extraordinary development in terms of yields, but perhaps less so in terms of spread," he says. "When I first worked at the French debt management agency, then called Bureau A1, in 1997, we borrowed at anywhere from zero to 15 basis points wide of Germany."
