16.01.2012

By Simon Miller

Bond buyers shrugged off the Standard & Poor's downgrade of France on Friday buying €8.5bn (£7.03bn) of 12, 25 and 52-week bills in its debt auction this afternoon (16.01.2012).

Although the auction was slightly short of the country's €8.7bn target, France sold 12-week bills at 0.175%, 25-week bills at 0.295% and 52-week bills at 0.42%.

On Friday, S&P downgraded France one notch to AA+ with a negative outlook. The ratings agency also downgraded Austria, Malta, Slovakia and Slovenia by one notch while Cyprus, Italy, Portugal, and Spain were downgraded by two notches.

The agency said the rating actions were primarily driven by an assessment that the policy initiatives that had been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.

"In our view, these stresses include: (1) tightening credit conditions, (2) an
increase in risk premiums for a widening group of eurozone issuers, (3) a
simultaneous attempt to delever by governments and households, (4) weakening economic growth prospects, and (5) an open and prolonged dispute among European policymakers over the proper approach to address challenges," said S&P in its ratigns note.

The move sparked harsh language from the eurozone and today, the EU commissioner for economic and financial affairs Olli Rehn accused rating agencies of being the tools of "American financial capitalism".

Meanwhile the yield on UK 10-year gilts fell to nearly a new record low, dipping 1.924% at the start of the day - close to the all-time low of 1.922%on 30 December.

In contrast, Portugal's 10-year jumped 204 basis points to 14.72%.

In addition, the European Central Bank announced it had bought €3.766bn-worth of bonds in the week to 13 January 13, up from €1.104bn the previous week.