The State issued the first OAT linked to the French consumer price index (OATi) on 15 September 1998. This innovation was followed in October 2001 by the very first issue of an OAT linked to the euro-area consumer price index excluding tobacco (OAT€i), and a third OAT was issued in May 2022, the very first green OAT€i.
Since then, AFT has issued inflation-indexed securities on a regular and transparent basis, thus creating two curves, one indexed to French inflation and the other to euro-area inflation. Such securities account for around 10% of AFT’s annual issuance programme.
Since 2004, OATi and OAT€i auctions are held on a regular basis on the same day as auctions for medium-term OATs, but during a separate session held at 11.50am. As of 2016, the optional August and December auctions may include issuance of index-linked securities. In this case the auction is held on the first Thursday at 11.50 am. OATis and OAT€is are designed for all types of investors looking to protect the purchasing power of their investments, improve their asset-liability management or diversify their investment portfolio. They are intended for resident or non-resident institutional investors, such as insurance companies, pension and social welfare funds, asset managers and banks, as well as retail investors.
On 31 December 2022, the par value of outstanding OATi issues totalled €65.8bn and OAT€i issues stood at €148.2bn.
OATi GENERAL CHARACTERISTICS
These bonds have a par value of €1 and the real coupon yield is a fixed percentage of the index-linked principal. It is established at the time of issue and remains fixed to maturity. The coupon is paid annually and calculated as follows: real coupon yield × par value × indexation coefficient. The indexation coefficient is equal to the daily inflation benchmark of the day divided by the basic benchmark. The daily benchmark is calculated by linear interpolation between the CPI for the month M-3 and the CPI for the month M-2, and the basic benchmark is the daily inflation index on the dated date (1) of the OAT at its first issue. Thus, the indexation coefficient calculates the change in the price index since the dated date. The benchmark index is the CPI, the consumer price index excluding tobacco for all French households, published every month by INSEE.
(1) The dated date for an OAT is the starting date for calculating the first coupon for the said OAT, i.e. the coupon date immediately prior to the first date of issue for the OAT in question. For example, an OAT issued for the first time on 1 April of year Y, with a coupon date of 25 May, will have a dated date of 25 May of year Y-1.
OATs are redeemed using the following formula: face value × indexation coefficient at the redemption date. If the daily inflation index at maturity is lower than the basic benchmark, the bond is redeemed at par.
A specific OATi calculation framework
AFT acts as the calculating agent for the bonds it issues. In other words, AFT is tasked with calculating indexation coefficients. AFT calculates and publishes the daily inflation benchmarks and indexation coefficients on its website.
To calculate the daily inflation benchmarks and indexation coefficients, AFT applies the same methodology to all OATis. This methodology is defined in the regulatory framework laid out in the order creating these securities, as published in the Official Journal. Each order stipulates that the index used to calculate the daily inflation benchmarks is “the CPI, the consumer price index excluding tobacco for all French households published every month by INSEE.”
If the base changes, i.e. only in the very specific case in which the competent statistics office (INSEE, in the case of OATis) decides to change the reference year for calculating the CPI, the orders creating the OATis stipulate how the coefficients will be adjusted: “When INSEE changes the base used to calculate the consumer price index, the adjustment between two months whose indices are calculated on different bases is made with reference to the consumer price index of the month of December of the last year in which indices were published using both bases. The adjustment key is calculated using the following formula”, which is published in the Official Journal (no. 17) on 21 January 2010 (text no. 21, in French):
