AGENCE FRANCE TRESOR is tasked with managing the government debt and cash positions under the most secure conditions in the interest of the taxpayer.
Home > Debt management > Products > OATs for retail investors

'Zero coupon' capitalisation OATs  

“I don't need an additional income, but I need some secure long-term savings to prepare for my retirement. I'm interested in capitalisation OATs.”

A special benefit:

- Allows long-term savings to be built up with an initial investment costing less than buying a nominal fixed-rate OAT.

Since the capitalisation OAT does not pay any coupon, there is no need to worry about reinvesting coupons. 

Capitalisation OATs (also known as “zero coupon” or “stripped” OATS) are created from nominal fixed-rate OATs by separating out the coupon (“coupon certificate”) from the principal (“principal certificate”). It is this principal certificate that is a capitalisation OAT. This OAT does not give rise to payment of an annual coupon and the absence of a coupon is counterbalanced by a lower subscription price.
An investor who is not seeking an additional income knows, at the time he acquires the securities, how much he will receive when the instrument reaches maturity as the capitalisation OAT is always repaid at par i.e. €1.
The market value of the capitalisation OAT is necessarily below par. However, it fluctuates in line with the value of market rates and an investor who disposes of it before the maturity date might realise a capital gain or a capital loss.
The value of a capitalisation OAT is more sensitive to interest-rate movements than that of an OAT that has not been stripped and, particularly as its maturity date moves further away.

Taking a concrete example

Stripped OAT 25 October 2024
This stripped OAT which could be acquired on the Euronext market for €0.7789 (closing price on 27/02/2014) will be repaid at €1 when it reaches maturity, on 25 October 2024. In return for making an investment of €7,789 on 17 February 2014, the holder is certain to receive €10,000 on 25 October 2024. This amount at the time of repayment is guaranteed.

The investor does not receive any coupon between the time of purchase and repayment but, by holding onto the bond until its maturity date, he can be certain of making a capital gain of €2,211.

All stripped coupon certificates have a face value of €0.25. The nominal value of a principal certificate is €1. These days, only certain certificates of principal for OATs with an April maturity date are listed continuously on Euronext.