The government sold the bond with a yield of 1.875%, or 3 basis points below the rate on the prior 30-year benchmark security that matures in 2032, according to Agence France Tresor, which issues bonds on behalf of the government. Demand for the bonds reached €6.4 billion, it said in a statement. The figure compares with the level of €3 billion some analysts forecast and the €5.97 billion of bids for the previous 30-year sale.

The securities pay investors an amount linked to consumer prices in the 13 nations that share the euro. „It appeals to pension funds and it’s a natural hedging instrument for banks that offer inflation-related products,” said Giles Gale, fixed-income strategist at Royal Bank of Scotland in London. „The sale went well.” The yield was in the middle of a guidance range of 2-4 basis points below the 2032 bond, according to bankers involved in the sale, who declined to be identified. The bonds offer a fixed coupon of 1.8% on top of the rate of inflation, which erodes the value of fixed-income securities. The last time France issue a new 30-year inflation- protected bond in 2002, the coupon was 3.15%.

„This is not an easy market given the volatility in the equity market last week and this week,” Benoit Coeure, CEO at AFT, said in a telephone interview from Paris. „We managed to get more than €6 billion of orders. We consider it a success.” A rout in global stock prices that started last week wiped as much as $2.4 trillion off the value of world markets. The yield on the French 30-year index-linked bond due in 2032 was at 1.88% after the sale, up 2 basis points on yesterday as of 6:30 p.m. in London. The breakeven rate, or yield gap between a 30-year nominal bond and its inflation-linked counterpart, was at 2.24%.

The UK, Italy and Greece have all sold index-linked debt this quarter to take advantage of seasonal demand from pension companies and other funds that need to hedge their future payouts against inflation. About a quarter of the new French securities were sold to asset managers, pension funds and insurance companies, and another 3% went to central banks. Approximately 55% of the bonds went to banks, according to the statement.

„The large proportion of banks reflects the development of inflation-related structured products and inflation hedging strategies of end-investors,” it said. Investors in the euro region accounted for half of the buyers, with most based in Germany. Orders from Britain made up one-third of the total demand. The proportion of US investors buying the security increased to 10% of the total, from 3% for the previous sale, according to the debt agency.

„There has been a surge in interest from US investors for euro-denominated debt,” said Coeure. „There’s growing need to manage inflation exposure in the US.” Greece sold €1 billion of 50-year inflation bonds on March 1, its first such issue. The UK sold 50-year index-linked gilts and Italy issued 10-year index-linked bonds in January. The last time France issued a new 30-year inflation-protected note was in 2002.

Pension funds and insurance companies typically buy index-linked bonds as the securities compensate for inflation, which erodes the value of fixed-income securities. The coupon is paid on top of an inflation payout linked to the harmonized index of consumer prices in the euro region. Barclays Capital, JPMorgan Chase & Co, Societe Generale and UBS AG arranged the sale, along with ABN Amro, BNP Paribas, and the French bank Natixis. The settlement date is March 14. (Bloomberg)