FRENCH PRIMARY BOND MARKET SHOWS NEW SPARKLE

  The French primary bond market is showing
  signs of renewed effervescence after several weeks of lethargy
  and the trend is expected to continue if hopes of imminent
  interest rate cuts are fulfilled, market operators said.
      The Bank of France is generally expected to give a signal
  to the market, possibly at the beginning of next week, by
  announcing a quarter point cut in its intervention rate, which
  has stood at eight pct since January 2, or in its seven-day
  repurchase rate, set at 8-3/4 pct since January 5.
      The central bank's averaged-out day to day call money rate,
  the reference rate for interbank money market operators, which
  reached 8-3/4 pct on February 18 has fallen to 7-3/4 pct this
  week, dealers noted.
      The Bank of France's "open market" policy to regulate the
  money markets since December has been based on a floor and
  ceiling of rates within the limits of its intervention and
  seven day repurchase rates.
      For the moment the sentiment is of "wait and see" on rate
  cuts, but there are now more optimists than pessimists among
  market operators, a dealer for a major French bank said.
      Dealers said there is abundant liquidity on the bond
  market, noting that this week's monthly Treasury tap issue of
  11.87 billion francs had a good reception and was fairly easily
  absorbed.
      The Treasury had set an upper limit on the issue of 12
  billion francs and was likely to continue to try and sell as
  much paper as it could over coming months to meet its borrowing
  needs for this year of around 150 billion, one banker said.
      Dealers said there was no difficulty in placing liquidity
  in the primary market at the moment despite competition from
  the surge in investments on the Paris stock exchange.
      There has been a flood of large bond issues, but with
  formulas well adapted to market conditions and investor demand
  - with warrants or a mix of fixed and floating-rates - which
  have been snapped up, and with generally broadly negative fees.
      Dealers pointed to the recent Caisse d'Aide a l'Equipement
  des Collectivites Locales (CAECL) 8.90 pct two billion franc
  bond with warrants exchangeable for floating-rate bonds issued
  over 13 years and 80 days at 97.04 pct with payment date March
  9, which was today quoted at -0.90 to -1.10 pct.
      Even classic fixed-rate issues, after being neglected since
  the end of last year, are finding buyers, one banker said.
      Dealers said that now the question was to see how the terms
  of imminent operations would be set, with great market interest
  focussed on the likely three next issues.
      These will include an expected four to five billion franc
  issue for Electricite de France, to be followed by a bond of
  around one billion francs for Auxiliaire du Credit Foncier, a
  subsidiary of the banking group Credit Foncier de France, and a
  new issue by tender from the mortgage agency Caisse de
  Refinancement Hypothecaire.
  

