Reduction in average debt maturity
Since 2001, Agence France Trésor has been managing the average maturity of debt. The need for viable liquidity for each issue, growing investor demand for very long-term products and the effective management of refinancing risks are quite naturally leading to a relatively long average debt maturity. Normal circumstances, characterised by a clearly rising rate curve, with higher long rates and weaker but more volatile short rates, reducing this average maturity should make it possible to reduce interest costs on average over a long period, all things being equal. On the other hand, this increases the variability of this expense. When setting an objective to reduce the average maturity of debt, the aim is to strike a balance between lower interest costs and greater variability in these expenses. Any such reduction must be implemented progressively, over a period that is at least equal to one economic cycle, since the level of rates varies with the economic outlook.
Agence France Trésor has concluded interest-rate swaps with financial counterparties chosen from a list of Primary Dealers. In order to reduce the average maturity, swaps have been put in place with a view to replacing a long fixed-rate charge with a shorter fixed-rate charge. In light of the offers available on the market, which do not directly concern fixed-rate swaps but have been developed on swaps between fixed and variable rates, this calls for two related operations: with the first, the State receives a fixed rate associated with long maturities and pays a variable rate (short-term); symmetrically, with the second, it receives an infra-annual variable rate and pays the fixed rate associated with intermediate maturities with a view to reducing the volatility of the cost of debt resulting from the first.
The general conditions seen on the fixed-income market since early summer 2002, notably in terms of volatility and rate levels, mean that Agence France Trésor is no longer able to pursue this programme to reduce average debt maturity through swaps under satisfactory conditions. The French Minister of Finance therefore decided to temporarily suspend this programme in September 2002 and immediately notify the Finance Commissions. As the market conditions to allow the swaps programme to be resumed have not been seen since that point, no transactions that would increase the swap portfolio have been concluded since July 2002. However, the “short-term” swaps initially concluded in 2001 and 2002 have been renewed in 2005 in order to keep the level of the portfolio's outstanding debt constant at €61.2 billion and to avoid exposure to rates of less than one year.