The principal method of issuing French government securities since 1985 has been the “bid price system”.
Participants compete in the auction on an equal footing through a transparent system of open bidding according to a planned issuance programme.
The bid price system consists of supplying securities at the bid price or the effective bid rate as opposed to the marginal price or rate.
A currency is said to have legal tender status when a payment in that currency is accepted in exchange for any goods or services and in payment of taxes in a given geographical area. The euro has legal tender status in 19 European countries, which form the euro area, as well as in Kosovo and Montenegro.
A bond is a recognition of debt. The State, some public sector entities and major corporations issue bonds. The borrower promises to make annual interest payments until the bond matures.
The breakeven inflation rate is the difference between the yield of fixed-rate (non-indexed) bonds and the yield on index-linked bonds. It represents the market participants’ inflation expectations. Factors other than inflation expectations affect the values of index-linked bonds compared with fixed-rate bonds, such as liquidity or the mismatch between supply and demand of index-linked bonds compared to fixed-rate bonds. Lastly, an inflation risk premium is included in the yield of fixed rate bonds, unlike index-linked bonds.
In a debt contract, clauses that allow for an orderly and predictable restructuring of the debt with the agreement of a majority of the creditors. The aim is to facilitate restructuring by making it possible, as unanimity of creditors is required in the absence of such clauses. For a debt made up of different bonds, such as French long-term debt which includes several dozen OATs, there are two possibilities for restructuring:
- by proceeding with a vote of the holders OAT by OAT, and, when the restructuring terms are common to several OATs, with a second vote involving the holders of the OATs concerned: this is the so-called "double threshold" aggregation:
- by directly voting the holders of all OATs concerned by similar restructuring terms: this is known as "single threshold" aggregation.
OATs created before 1 January 2013 do not have a CAC, those created from 1 January 2013 have double threshold CACs. OATs created after the adoption of the agreement amending the Treaty establishing the European Stability Mechanism, scheduled for 2022, will have single threshold CACs. The legal regime applicable to CACs will then be set out in Articles D.213-25-1 et seq. of the Monetary and Financial Code.
A financial institution with bank status where security holders deposit their securities. The custodian needs to know at all times who owns what, what the status of these securities is (free, loaned, borrowed or pledged), and where this property is stored. Since dematerialisation, securities deposits are digitised; they are "secure" and extensively duplicated. The handling of electronic securities is immeasurably faster, more flexible and less expensive than paper securities.
Any sum of money borrowed by an individual or legal entity (debtor) that must be paid back to another individual or legal entity (creditor). Until the debt matures, the debtor will pay the creditor interest (a coupon) at an agreed rate (yield) every year on an agreed date.
Payment of amounts due when a security reaches maturity.
Synonym: redemption (for the debtor); collection (for the creditor).
The purpose of this type of transaction is to pre-finance the issuance programmes of future years and thus smooth the amounts to be issued over time. AFT takes market conditions into account when carrying out these operations: the repurchase of a security on the market depends on the liquidity of the security and its price. AFT reports monthly on the amounts repurchased, by security, during the month.
For financial transactions or trades, delivery consists in the seller handing over a security to the buyer or subscriber.
Fixed-rate discount Treasury bills (BTFs) are similar to short term Treasury bonds. They have an initial maturity of up to one year. All BTFs taken together represent the government’s short-term debt (webpage: https://www.aft.gouv.fr/en/btf characteristics). For the fungible nature of a bond, see the definition of a “fungible Treasury bond”.
See the following webpage: https://www.aft.gouv.fr/en/ introduction.
This is the identification code for a security (share, bond, UCITS, etc.).
This international standard was adopted by the Paris Stock Exchange, in practice the company Euronext Paris, on 30 March 2003. It replaces the SICOVAM code, named after the interprofessional company for the clearing of securities, which was bought out by the Euroclear group at the end of 2000. The ISIN code is assigned to each new security, in principle definitively, by Euroclear France, which acts as the central depository.
The ISIN code is composed of 12 alphanumeric characters. For example, the first green OAT has the ISIN code: FR 001323433 3.
- The first two characters are the letters identifying the country of issue, in this case FR for France.
- Then 9 digits correspond to the security identifier. For securities existing before the adoption of the ISIN code, this is the SICOVAM code. For securities issued after the adoption of the ISIN code, these 9 digits are assigned by Euroclear France.
- Finally, the last digit of the ISIN code is a code verification key, calculated on the basis of an algorithm, to protect against counterfeit numbers. The method for checking the validity of an ISIN code is available in French on the Banque de France website: https://www.banque-france.fr/sites/default/files/media/2016/11/18/m07-1…
The adoption of the ISIN code in France was a major operation at the time, requiring Decree 2003-248 of 18 March 2003 adapting working hours in management companies, credit institutions and investment firms in order to implement a new securities identification system.
This is one of the primary dealers intervening in a syndicated issue. When a syndicated bond is being issued, the banks that prepare the bond, collect orders, allocate the bond based on supply and demand and set the price are known as the “lead book runners”.
A financial instrument or market is said to be liquid when buy and sell transactions can be carried out without triggering excessive variations in price compared with the last transaction price.
Sum of money lent by a creditor temporarily to a debtor.
Synonyms: borrowings, credit; receivable, asset (for the lender); debt, liability (for the borrower).
Market makers are spot market operators who supply a price whenever they are contacted, regardless of market conditions.
Date of redemption established when a loan agreement is signed.
Synonym: redemption date.
OATs are fungible medium- and long-term Treasury bonds with maturities of 2 to 50 years. The fungibility technique consists in associating new OAT issues with existing ones. This enables the State to issue new bonds at a price in line with the latest market prices but identical in all other respects to the initial issue. As a result, the State avoids issuing too many bonds with different characteristics and ensures the liquidity of those already issued. OATs are the only form of medium-term and long-term State financing. There are more than seventy OATs in circulation, listed by their yield and maturity date (e.g.: “OAT 0.00% 25 May 2032” or “OAT 0.50% 25 May 2072”). Their characteristics and issuance history are set out in the security fact sheets published on AFT’s website (https://www.aft.gouv.fr/en/ encours-detaille-oat).
A call option gives the holder the right to buy an asset at a fixed price at a point in the future up to a certain date. A put option gives the holder the right to sell the same asset under the same conditions. Tradable options are contracts that can be exchanged on regulated markets.
Face value of a security. A company’s share capital is X million euros divided into N shares with a par value of X/N euros. A bond has a par value of N euros: all French Treasury securities have a par value of one euro.
Par bonds are bonds that have a fixed rate of interest, in contrast to index-linked bonds.
The primary market is where new securities are issued and subscribed by investors; it is the market for capital increases and bond issues. Compared to the secondary market, which sells “second-hand” financial securities, the primary market sells only “new” ones. It is on this market that debt issuance takes place, either through auctions or by syndication.
Sum of money equivalent to the market value of a good or service. The price is set by the interplay of supply and demand. Bond prices vary inversely to bond yields.
Value of a bond less the coupon amounts. For bond debt, the amount paid by the debtor to the creditor when the bond matures.
Offres non-compétitives : la pratique des ONC consiste à soumettre une quantité sans préciser le prix. Les ONC sont servies en priorité au prix moyen pondéré qui résulte de l’adjudication.
Assessment by agencies specialising in rating the soundness of corporate financial statements and financial instruments issued by economic agents.
Rating agency: a firm specialising in corporate credit ratings, i.e. in awarding scores based on the state of a company’s accounts or the financial instruments issued by an economic agent.
Risk is the possibility, which is never zero, of losing all or part of an asset or its equivalent monetary value. Risk is at the very heart of financial activity: evaluating, spreading, assuming, diversifying and hedging risk are all tasks involved in the settlement of financial transactions. The price of a bond indicates the degree of risk incurred by the buyer. Counterparty risk is the risk that the buyer will not pay for what they have purchased, that the seller will not deliver what they have sold, that the borrower will not repay their loan or that the lender will not supply the loan funds they have promised (and for which they have taken guarantees). Also called default risk, issuer risk or risk of non-payment.
A set of activities that accompany the life of a security. For bonds, they consist essentially of "coupon detachment", i.e. the collection of the interest paid on the securities. For shares, they consist of collecting the dividend and carrying out stock splits where appropriate. For all securities, they may also consist of exchanging them for other securities.
A financial instrument held for investment purposes. In France, securities are issued in electronic form nowadays. Securities issued by the State are governed, inter alia, by Articles L.213-21-1 to L.213-31 of the Monetary and Financial Code. For the fungible nature of a bond, see the definition of a “fungible Treasury bond”.
For financial trades and transactions, settlement consists in a buyer or subscriber paying the seller for acquired securities and the seller delivering the said securities.
Group of banks that organise and oversee a large bond issue. It comprises lead book runners and co-lead book runners.
Together with auctions, this is the other debt issuance method. A syndicated issue is where the issuer sells some or all of the securities to be placed with the public to a bank or a syndicate of banks. This is the preferred placement method for corporate issuers. This was also true for the State until 1985, but AFT still uses it for certain innovative or long-maturity securities, more particularly if they are green or index-linked to inflation.
An interest rate swap is based on the comparison of a variable interest rate and a fixed interest rate between counterparties who swap interest-rate margins without exchanging principal over a specified period. They are particularly suited to hedging long-term risk in business. Corporate treasurers like the flexibility of swaps, which enable them to choose the duration, benchmark variable interest rate and the notional value. A swap between a bank and a company can be settled at any time by calculating the present value of the future fixed-rate flows at the market rate and comparing this to the initial notional value. Swaps are also used on a regular basis to hedge the interest rate risk on variable or fixed interest rate assets.
The daily CNO-TEC N index, with a constant maturity of N years (N is between 1 and 30), represents the yield to matu rity of a fictitious OAT with a maturity equal to N. The yield to maturity is obtained through straight-line interpolation of the annual yields to maturity of the two OATs with matur ities closest to maturity N.
A stock market transaction involving the exchange of a certain quantity of a given security at a certain price between two parties, each represented by a financial intermediary (investment company). The trade is time- and date-stamped on Euronext and then sent for clearing and settlement.
Synonyms: transaction, exchange.
A market operation involving the exchange of a certain quantity of a given security at a certain price between two parties, each represented by a financial intermediary (investment company).
Synonyms: trade, exchange.
French Treasury securities are issued by the State to finance its debt. There are several types of French Treasury securities: fixed-rate discount Treasury bills (BTFs) issued with a maturity of less than one year and fungible Treasury bonds (OATs) issued with maturities of between 2 and 50 years.
Said of an interest rate that is not constant for the duration of a contract, but which changes depending on outside fac tors, such as market rates (Euribor, €STR) or statistical indi ces.
Bond price volatility stems mainly from the interest-rate risk that affects fixed-rate bonds. The price of a bond varies inversely to the market interest rate. Sensitivity is even greater when the coupon rate and the market interest rate are low.
Percentage used to calculate the bond coupon. It is expressed as a percentage. The yield is established when the bond is issued. It can be fixed or variable. Interest (payment): sum paid annually to a bondholder by the issuer up to maturity.
The yield curve illustrates the relationship between yields and their maturities. The curve generally, but not always, rises because of the risk premium (i.e. long-term yields are higher than short-term yields).