Eurozone crisis: France passes €8bn bond auction test

• Analysts welcome 'decent' sale results...
• ... despite rise in 10-year yields
• Hungary crisis deepens....
• Swiss central bank head faces currency dealing allegations
Paris
Paris found buyers for almost all of the €8bn debt on offer today, but the euro has still fallen to new lows. Photograph: Alamy

5.07pm: The Dow Jones is down 0.36% led by firms connected to the defence industry, which is expected to get a battering in announcements of a strategic review by the Obama administration. The US banks played a part in keeping the market bouyant, unlike their European counterparts.

And there we will leave it for today. Thank you for all your comments. Graeme Wearden will be back in the saddle tomorrow morning.

5.05pm: US markets are taking the better than expected ADP jobs figures (up 325,000) with a pinch of salt.

4.42pm: The FTSE has closed down 44.19 at 5624.26 following a poor performance by financial traders Icap and Man Group. Tesco and National Grid, two pension fund favourites, also declined.

As I pointed out earlier, the Paris Cac and Frankfurt Dax, were dragged down by their banks, which are well known for their close ties to southern Europe after several years of toxic bond buying. The Cac finished down 1.36% at 3150. The Dax ended the day at 6096, down 0.25%.

4.19pm: Let's swing the spotlight back to Italy and its bond yield. The yield, a proxy for the interest rate it pays on its debts, has hit 7.11%

As I and all my colleagues have written at some point in the last couple of years, a yield above 7% is certain death, if not today, then tomorrow or next month. Sometime soon. That is unless the tooth fairy leaves a big nugget of gold under Mr Monti's bed.

Popular opinion says he is more likely to find a horses head lying next to him when he wakes up tomorrow after his unscheduled dash to Brussels.

There is plenty of reports coming out of Germany that MPs in Merkel's CDU party are ready to block further bailout funds, whatever the risks. These same MPs are also distracted by a row over attempts by the country's president (a CDU member) to muzzle press reports over a house purchase made with a business ally's cash. There are calls for him to resign.

Still, these reports look far fetched. The Germans, according to most of the analysts I consult, are expected to back even bigger lending by the EFSF and the ECB when the chips are down.

4.12pm: The Swiss are admitting their ethical rules on forex trading by staff are a little wonting, despite saying earlier they were in line with EU guidelines (are there EU guidelines?).

Pleading with a baying right wing press, the council president of the central bank says it is clear there is a need for reform (not that he says anymore about what kind of reform.

3.58pm: Die Weltwoche, the Swiss right wing newspaper at the centre of allegations against central bank boss Philipp Hildebrand, printed new allegations against him today.

The paper kindly outlined the main allegations on its website, though an English translation is a bit clunky. So here they are: http://translate.google.co.uk/translate?hl=en&sl=de&u=http://www.weltwoche.ch/&ei=fMgFT-iRMsWa-wafm7TSAQ&sa=X&oi=translate&ct=result&resnum=1&ved=0CEYQ7gEwAA&prev=/search%3Fq%3Ddie%2Bweltwoche%26hl%3Den%26biw%3D1259%26bih%3D854%26prmd%3Dimvns

In an extraordinary twist, the IT employee of Bank Sarasin, who allegedly leaked the details of Hildebrand's transactions, is filing a criminal complaint against the central banker for a violation of the Exchange Act (insider trading).

3.55pm: Philipp Hildebrand, the Swiss bank boss, has steadfastly refused to tackle accusations against him and his wife of insider dealing at a press conference, preferring to say he will take his time and consult with his lawyers.

3.50pm: RobertSchuman is right to point out the Swiss bank pegged its franc to the euro currency, but it had a similar effect to a dollar peg at the time.

And 3Mason is right to say our holidays could be in ultra cheap Greece this year, diverting attention from a falling euro to the prospect of a new exchange rate with the Drachma

3.45pm: Investors always advocate sticking with what you know. Seems former England football manager Steve McLaren is following that advice with his return to FC Twente, the Dutch club that counts as his only really successful investment.

3.27pm: Back to the Swiss central bank saga. The press conference is not proving very illuminating. Philipp Hildebrand says that as long as he has the confidence of the government and the governing stepping down is "not an issue for me".

He has criticised the right wing Swiss People's Party for using leaked information about his wife bank account to mount an attack on him. The SVP has pursued him for the last year over a succession of policy mistakes (as it sees them), with SVP vice president, the billionaire Christoph Blocher, cheerleading from the sidelines.

Blocher is a champion of Switzerland's banking secrecy laws and has criticised Hildebrand for signing tax compliance deals with other countries, among them the UK.

Hildebrand, who says the bank's reputation remains unsullied (really?), has agreed to open his bank accounts to the authorities.

3.21pm: With all the attention on Unicredit, it's easy to forget other banks are being deserted by their investors.

Deutsche Bank and Commerzbank are down by more than 5%, nullifying the goods news for car sales at VW (up 1.45%) and Daimler (up 1.35%). Overall the Dax is down almost half a per cent.

The French banks are dragging down the Paris CAC with Societe Generale, Natixis and BNP Paribas all down more than 5%.

3.06pm: Mr Hildebrand, the under pressure head of the Swiss central bank, says he going to fight accusations that he and his wife were involved in insider trading "with all means".

Readers will remember Hildebrand's wife profited from trades in dollars after her husband pegged the Swiss franc to the US currency.

He is teling a press conference right now that he always acted correctly and the rules are in line with EU standards. None of his contribution so far answers the central allegations.

3.03pm: I forgot to say hello, and to mention the euro is down to €0.82660 against sterling.

2.54pm: Don't buy your holiday money yet, Brits, the euro keeps on falling and judging by the continued lending freeze and decline in confidence, there is further losses to come. A few minutes ago the euro touched a session low of $1.2783.

Live blog: substitution

2.35pm: Time to hand over to my colleague Phillip Inman.

2.20pm: An interesting news flash out of Italy -- prime minister Mario Monti has just left the country en route to Brussels for an 'unscheduled meeting'.

Monti's office aren't giving any details of his agenda, or who he might be meeting. The PM has been expected to meet with Nicolas Sarkozy tomorrow.

The timing is very interesting as Sarkozy and Angela Merkel are due to hold their own mini-summit next week, to try and hammer out details of the new EU Fiscal Compact.

Italian prime minister Mario Monti Italian prime minister Mario Monti. Photograph: Giampiero Sposito/Reuters

It's not a great time for Monti to be seen leaving the country - shares in Unicredit, Italy's largest bank, have just been suspended after falling 16.2% today.

That's helped to drive the main Italian stock index down by nearly 3.7%.

Unicredit's shares have been in freefall since yesterday morning, when it revealed that its €7.5bn cash call will be deeply discounted. Its CEO is claiming today that he's still confident that the right issue will go ahead. Should it fail, the consequences could be extremely serious -- as it would suddenly become much harder for other banks to bolster their capital reserves.

Live blog - euro

2.09pm: The euro's slide continues -- it just crunched below the $1.28 mark to a new 15-month low of $1.2798.

1.58pm: The European Financial Stability Fund has just announced that it has raised €3bn to fund Ireland and Portugal's bailouts.

The sale of three-year bonds was the EFSF's first challenge for 2012. To get it away, though, it had to offer investors a juicier price (the issue was priced at 40 basis points above mid-swaps - the standard measure that EFSF debt is priced against - which is nearly seven times more than a year ago).

Richard McGuire of Rabobank International told Bloomberg that EFSF debt used to "sell like hot cakes", but not any more. Thus the better price, which he McGuire:


...reflects the changing market backdrop, the concerns over the swathe of potentially imminent ratings downgrades within the euro zone which would see the EFSF also lose its own gold-plated rating.

In other words, if France loses its AAA rating then the EFSF must follow.

Live blog - US flag

1.34pm: Continuing the 'good news from America' theme, the Labor Department just announced that the number of people signing on as unemployment fell 15,000 to 372,000 in the last week (up to 31 December 2011).

The weekly 'jobless claims' figure can be quite volatile, but it's another indication that the US jobs market is moving in the right direction....

1.17pm: Encouraging economic news out of America -- where the private sector payroll jumped by a much-better-than-expected 325,000 in December.

That's being taken as a sign that the US economic recovery is gathering speed.

The dollar has strengthened on the news -- pushing the euro down to $1.2804 - a new 15-month low against the dollar.

12.18pm: Over in Greece, union and business leaders are reacting badly to a dire warning from prime minister Lucas Papademos last night.

Papademos declared that Greek people must accept further wage cuts and the loss of hard-won labour rights, otherwise Greece would topple out of the eurozone.

Helena Smith, our correspondent in Athens, has the details:


Yiannis Panagopoulos, who heads the country's biggest labour force the Confederation of Greek Workers, Gsee, immediately ruled out lowering the minimum wage saying "collective bargaining agreements won with the sweat of workers will never be given up."

After holding talks with Papademos, the unionist also ruled out doing away with so-called 13th and 14th wages employees receive at Christmas and Summer as vacation bonuses.

Lucas Papademos Lucas Papademos. Photograph: Petros Giannakouris/AP

Papademos who was appointed in November to lead a coalition government to secure a second rescue package for the debt-stricken country, has chosen to rachet up the rhetoric, telling Greeks that more sacrifices are the only way of averting economic collapse.

As Helena explains:

"We have to give up a little so we don't lose a lot," he told union and business leaders Wednesday – eleven days before the arrival of officials from the European Union, International Monetary Fund and European Central Bank tasked with evaluating whether Greece should be bailed out to the tune of 130 bn euro.

"Without this agreement with the troika and subsequent financing, Greece in March faces the immediate risk of a disorderly default," he said referring to the 14.4 billion euros of bonds Athens must redeem in March.

Insiders say the beleagured prime minister is likely to drive the message home in even stronger terms when he chairs a Cabinet meeting later today.

11.55am: With those debt auctions out of the way, the picture in the bond markets is somewhat concerning. While German debt has strengthened today, weaker countries have come under more pressure.

That has pushed the gap between Bund yields and those of Italy, Spain and France.

Here's a list of the latest yields on 10-year bonds:
Germany: 1.872% (down 0.05 percentage points)
France: 3.375% (up 0.03 percentage points)
Spain: 5.59% (up 0.1 percentage points)
Italy: 7.07% (up 0.11 percentage points)
UK: 2.053%
(up 0.002 percentage points)

11.33am: Today's disappointing Hungarian debt auction comes as analysts continue to speculate that the country could default on its debt this year - pushing Europe into yet more chaos.

To avoid a default, Hungary needs to agree a new credit line with the International Monetary Fund. Negotiations between the pair stalled, though, over the Hungarian government's insistance on making changes to the country's central bank - a move denounced as a takeover by its own governor.

It's hard to imagine that Hungary could bear the weight of borrowing at nearly 10% for long. Today's auction may only have added £90m to its debt pile, but it needs to roll over $16.5bn in 2012.

Tamas Fellegi, the minister in charge of IMF negotiations, told a news conference today that the government wants to secure a deal quickly. He claimed the government was:

entirely clear about the seriousness of the situation.

We are ready to discuss everything at the negotiating table.

But the markets are losing faith -- with the forint hitting another record low against the euro today (€1=324 forints).

Hungary prime minister, Viktor Orban Hungary's prime minister, Viktor Orban. Photograph: Karoly Arvai / Reuters

11.18am: The situation in Hungary continues to deteriorate again today.

The Hungarian government slashed the size of a debt auction, selling just 35 billion forints (£90m) of short-term debt, not the 45 billion forints (£115m) planned. That came after "technical problems" delayed the auction results (one might speculate that these problems included a lack of acceptable bids).

Even after cutting the size of the auction, Hungary had to pay an even higher interest rate to get the debt away. The yield on the bills jumped to 9.96%, up from 7.91% at the previous auction.

The word among City analysts we've spoken to is that Hungary may have refused to accept any bids with a yield over 10%.

10.53am: France's debt auction (results here) appears to have eased fears that the eurozone debt crisis might flare up again today.

That's despite the drop in demand for 10-year French bonds, and the latest slide in the euro to a 15-month low against the dollar.

Here's a round-up of the best City reaction (hat-tip Reuters):

Richard McGuire of Rabobank said the results were "decent". However there are large problems ahead - including a massive amount of Italian debt to be sold.

Given the clear risk of an imminent ratcheting up of market tensions as Italy's February-April redemption hump looms closer, today's sales should be seen as a successful battle rather than in any way determining the outcome of the war.


John Davies, rate strategist at Westlb, said the most important thing is France attracted enough bids to sell all the debt on offer:

France raised very close to the top end of its targeted amount so that's a positive for the market.

Annalisa Piazza of Newedge reckoned that the result was "not too bad", especially given the large size of the total auction (€8bn is rather a lot of debt to shift in one go).

Marc Ostwald made an interesting point -- much of the debt was probably taken up by French banks:


There was always going to be a pretty solid round of domestic demand, it was
always going to look much better than the Bund, simply because you are
on completely different yield levels.

10.22am: The euro fell to a new 15-month low of $1.2832 against the US dollar after the French auction results were released.

Traders pointing to the fall in demand for the 10-year bonds.

But the euro probably also suffered from disappointing industrial orders data for October (also released at 10am), which -- like so much eurozone data this week -- added to fears of a recession across the region.

10.07am: The French auction results are in.

The good news is that France managed to sell nearly €8bn of debt, as planned. The bad news is that demand for its 10-year bonds fell sharply, while the interest rate demanded by investors rose.

France sold €4bn of 10-year bonds at an average yield of 3.29%, up from 3.18% at the last auction of this type. The bid-to-cover ratio (measuring the amount of bids tabled versus the debt on offer) fell to just 1.643%, down from 3.046%.

In comparison, Germany managed to sell 10-year Bunds yesterday at a yield of just 1.93% -- but was left with €1bn unsold.

France also sold €2.165 of thirty-year debt, and found stronger demand. That sale attracted a bid-to-cover ratio of 1.817, with investors buying the debt at an average yield of 3.97.

Total debt sold by France this morning came to €7.96bn - very close to the target.

9.52am: Today's French debt auction (which closes shortly) comes as Nicolas Sarkozy's government starts to bring in measures to cut government spending and boost taxes.

Prime Minister Francois Fillon announced this morning that a bill aimed at overhauling social welfare funding will be submitted to the Parisian parliament in February. He warned French workers that labour laws need to change to make France more competitive, arguing that:

We need to hear the point of view of the unions, but our goal is clear: our tax system must favour the creation of productive jobs in France.

The French government is due to hold a summit with unions and employers on January 18.

With a presidential election looming, Sarkozy is making growth and employment a top priority. On Sunday he promised to take "important decisions" by the end of the month to promote growth and jobs.

Dodging a recession will be a big challenge, especially after French GDP for Q3 2011 was revised down last month.

Live blog - UK flag

9.38am: Some surprisingly good news from Britain's services sector -- activity in this dominant part of the UK economy jumped in December to a five-month high.

Markit's monthly PMI survey, just released, found that activity in the sector rose to 54.0 last month, up from 52.1 in November 2011.

That's a stronger result than City economists had expected, and should dampen fears that the UK economy contracted in the fouth quarter of 2011.

Markit chief economist Chris Williamson predicted that the UK services sector probably expanded by around 0.3% to 0.4% in the last three months of 2011, which should make up for weaker performances in other sectors.

Services are likely to have offset a renewed downturn in manufacturing and sluggish growth of construction to help the UK avoid a slide back into recession, at least for now.

There were still reasons to worry, though -- business confidence fell to its lowest level in nearly two years.

9.25am: The Italian unemployment rate has risen, in the latest sign that the eurozone economy is sliding into recession.

The headline jobless rate rose to 8.6% in November, data released this morning showed, up from 8.5% in October. That shows that more Italians signed on for unemployment benefit.

Italy's employment rate*, however, remained at its current rate of 56.9% - one of the lowest in the eurozone.

* - the proportion of eligible Italians actually engaged in the labour market.

9.18am: Jane Foley, currency expert at Rabobank, says there has been "heavy selling" of the euro ahead of the French debt auction. A bad result could send the single currency tumbling, she suggested in a research note:

The market will be far more sensitive to the results of today's French debt auction in an environment fired up even more by widespread speculation that France's AAA credit rating is all but lost already.

The results of the French debt auction this morning will set the tone for the rest of the session and perhaps for the rest of the week.

As well as hitting those new lows against the yen and the pound, the euro has dropped to $1.2866 against the dollar. Foley predicted that:

A break below $1.2855 could see a move towards $1.2780.

Live blog: news flash newsflash

9.12am: The euro is sliding in value this morning ahead of the French auction. It just hit an eleven-year low against the yen (€1=98.67 yen), and a new fifteen-month low against the pound (€1=82.56p).

Peripheral eurozone government debt is also suffering. The yield on 10-year Italian bonds just jumped back over the 7% mark, while the Belgian equivalent has risen above 4.5% for the first time since December 10.

Could be a Tin Hats On day (as FT Alphaville would say)

8.52am: This morning's auction of €8bn French government debt will show whether the financial markets still treat France as a AAA-rated country.

It's now exactly a month since Standard & Poor's put much of the eurozone on review for a downgrade, following the events at the EU summit in Brussels (where David Cameron played his veto). At the time, S&P said it would make a decision as quickly as possible.

Credit rating agencies usually give themselves a three-month window to conclude these reviews -- but S&P was expected to act rather faster on France (especially as it accidentally announced a downgrade in November!)

As Gary Jenkins of Swordfish Research pointed out:


In normal circumstances one might expect the decision to be made public in a couple of month's time, these are not normal circumstances and when you take into account the wording of the S&P release at the time, plus the fact that they "inadvertently" downgraded France on their credit portal, one would have thought that they could have made some kind of comment by now.

Peter O'Flanagan of Clear Currency says the French need the auction to go well:


The importance of successful auctions is evident when we see that Eurozone countries face the need to refinance a huge $157 billion in debt in the first three months of this year.

Increasing yields or not enough demand will put huge pressure on the Eurozone and accelerate contagion fears.

8.38am: Bad news for Ireland this morning -- its service sector slumped badly last month, raising fears of a double-dip recession.

Data from Markit this morning showed that activity in across Irish services companies fell in December, to 48.4 on its PMI index. That means that the sector shrank (the 50-point mark separates expansion from contraction) for the first time since December 2010.

This suggests that Ireland's tough austerity package is continuing to strangle economic growth in the country, pushing it back into recession. Company managers interviewed by Markit blamed fragile economic condutions and poor business confidence - 13 months after Ireland agreed a bailout from the International Monetary Fund.

As economist Nouriel Roubini commented on Twitter:

Ireland is clearly double dipping.

We know that the Irish economy contracted in the third quarter of 2011, with GDP tumbling by 1.9%. If it also shrank in the fourth quarter, then it would officially be back in recession.

Philipp Hildebrand, President of the Swiss National Bank Philipp Hildebrand, president of the Swiss National Bank. Photograph: FABRICE COFFRINI/AFP

8.29am: Another event to look forward to today -- the head of the Swiss National Bank is schedueld to address allegations that he was involved in several controversial currency transactions last year.

Philipp Hildebrand is accused of speculating on the foreign exchange markets only weeks before he instituted dramatic policy changes that weakened the Swiss franc, shifting prices in his favour.

It was initially thought that Hildebrand's wife conducted the dealings, but Swiss newspaper Die Weltwoche claims that the SNB president himself was responsible. As its deputy editor-in-chief, Philipp Gut, put it:

It's a classic forex speculation. The only option for Hildebrand is to step down.

Full details here.

8.23am: Here's a quick agenda for today:

Live blog: recap

• Italian unemployment stats for November: 9am GMT (10am CET)
• UK service sector PMI for December: 9.30am GMT
• Eurozone industrial new orders for October + producer prices for November: 10am GMT (11am CET)
• French €8bn bond sale - results from 10am
• US initial weekly jobless claims: 1.30pm GMT (8.30am EST)

8.15am: Good morning, and welcome another day of rolling coverage of the European debt crisis.

Today, France is in the spotlight as it holds an auction of €8bn of 10 and 30-year debt. With the French AAA-rating still looking shaky, the sale could spark another bout of eurozone jitters.

It's another big day for economic news, with data on the UK services sector, eurozone industrial new orders, and US unemployment all due.

We'll also be tracking events in Hungary and Greece, the two most troubled EU countries. Hungary is due to update the world on its negotiations with the IMF over a nere aid package, while fears are growing that Greece could be forced out of the euro by the end of March.

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On our daily blog we report on the turmoil in the bond, stock and currency markets - as well as the political dramas at the heart of the eurozone crisis.