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The minister for Economy, Finances and Industry Laurent Fabius has decided on the financing programme of the State for 2002. This programme outlines the proceedings for the financing of the State during the year 2002 according to the principles laid out in the programme for debt and cash management presented to the Parliament in the original Finance Bill 2002.
The State borrowing requirements will amount to EUR91.6bn in 2002, a small increase (+7.25%) over the actual 2001 financing needs, as a result of increased repayments of BTANs and OATs, partially offset by a narrower (-7%) budget deficit.
Within this framework, the total amount of medium and long-term (OAT and BTAN) issuance for 2002 is set at EUR85bn. This amount represents a small increase (+6.9%) over the net amount issued in 2001 (79.5bn).
To cover the whole financing needs of the State, the amount of BTF outstanding, EUR52bn at the end of 2001, will be increased and could reach about EUR65bn at the end of 2002. This increase also aims at developing this segment of the market, on which a growing demand is observed, emanating in particular from non-residents. Another consequence of this increase is to help reduce the average maturity on the public debt.
Laurent Fabius has confirmed the objective of bringing back this average maturity to 5 years and 6 months at the end of 2002. It was 6 years and 95 days at the end of October 2001. To achieve this, Agency France Tresor will forward the swaps programme initiated in 2001 and, as in 2000 and 2001, will be in a position to operate buybacks and switches when market conditions make them convenient.
The figures in italics are provisional, since they depend on the operations to take place before year end. (1) Buybacks achieved by the AFT in 2001, including the handing in of EUR2.5bn to pay for the new OAT€i. Corresponding amount for 2002 unknown. (2) The plus sign indicates a reduction of the outstanding credit on the Treasury account at Banque de France.
STATE FINANCING PROGRAMME FOR 2002
Reference : The press release by Laurent Fabius, minister for Economy, Finances and Industry, determining the State financing programme for 2002
1 - The major elements of the 2002 State financing programme
For 2002, the financing needs of the State will represent EUR91.6bn, a small increase (+7.25%) over the actual 2001 financing needs, as a result of increased repayments of medium-term BTANs, partially offset by a narrower (-7%) budget deficit.
The financing resources are distributed between the net medium and long term issues, representing EUR85bn, an increase of the outstanding BTF (short term) issues of about EUR13bn between the end 2001 and that of 2002 and lower outstanding deposits, representing about EUR6.4bn (a result mainly of lower deposits by La Poste on the State's account).
2 - Long and medium-term financing in 2002
Net amounts to be issued
The net issuance of medium and long term securities are brought to EUR85bn, a small (+6.9%) increase over 2001. Moreover, in 2002 as well as in 2000 and 2001, the AFT will operate buybacks and/or switches of debt, if market conditions and financing needs warrant it.
The gross issuance will be distributed as follows: about 10% for inflation-linked bonds (i.e. EUR8.5bn or more if buybacks or switches occur), 50% for BTANs (i.e. EUR42.5bn or more) and 40% for fixed-rate OATs or OATs TEC (i.e. EUR34bn or more).
This distribution outlines the growing significance of inflation-linked bonds, the issuance of which will have increased more than threefold between 2000 and 2001. The part of BTANs is to increase, as a contribution to the reduction of the average maturity of the debt.
Benchmark lines policy
As in 2000 and in 2001, the AFT plans to issue one new 2-year benchmark, two new benchmarks for 5-year bonds and two new benchmarks for 10-year bonds. These lines will be tapped in order that their liquidity should be supported by a sufficient outstanding principal.
As regards inflation-linked bonds, the AFT will regularly tap the OATi in order to strengthen the European benchmark status of the line. The AFT, in narrow co-operation with its primary dealers, will study whether to issue new bonds on this segment of the market; it will also consider tapping again the existing OATis.
The AFT could also resume tapping the OAT TEC. It will discuss, in liaison with the SVTs, how its policy on this market should evolve.
Last, the AFT will investigate in 2002, what changes could be brought to the strips market in order to increase its liquidity.
In order to adapt the auctions to the large increase in secondary volumes and to take the market seasonal variations into account, a reduction of the number of OAT and BTAN auctions has been determined for 2002, cutting their number to 18 from a previous 24. As a result, the average amount allotted at each auction will reach EUR4.75bn (notwithstanding the possible effects of buybacks). Practically, the AFT will auction no OATs nor BTANs in April, August and December three months during which the market is less buoyant. OATs will be auctioned every first Thursday of every remaining month, and BTANs every third Thursday. Exceptionally however, the OAT auction normally to take place on Thursday, January 3rd will be postponed to January 10th, while the following BTAN auction will be delayed until Thursday, January 24.
As regards the lines to be auctioned, the AFT retains capacity to adjust the lines issued to the final demand as forwarded by SVTs by tapping non-benchmark lines or by auctioning one single line at any given OAT of BTAN auction. In order to bring a more adapted response to a possibly volatile demand, no quarterly BTAN auction schedule will be published any longer.
The AFT will auction OATis at least once per quarter. As in 2001, such actions can take place together with any auction of OATs or BTANs. The two existing OATis may also be tapped on such auction days, according to demand.
3 - Short-term financing in 2002
During the years 2000 and 2001, demand for the short term French debt securities experienced a remarkable growth. The part held by non-residents has grown from 10% in 1998 to 45% at the end of 2001.
The AFT wishes to take advantage of this new development to assert the benchmark status of the BTF market, second market in Europe for short term bills. The changes brought to the issuing policy, as described below, are aiming at improving both liquidity and reknown as well as to deepen this market.
From now on, the issuing policy will embody the three following guidelines:
- the outstanding amount of BTFs shall be increased from EUR52bn at the end of 2001 to around EUR65bn at the end of 2002;
- the debt profile and the auctions are modified in order to give a broader liquidity to these bills, the expected average outstanding volume of each line being EUR4bn;
- the contacts with SVTs are made closer: a meeting (physical or through conference call) will take place every Wednesday before the auction is announced, in order to collect the SVTs' suggestions as regards volumes and lines to be auctioned.
Auctions will take place every Monday and will include the issuance of 3-month BTFs, along with either 6-month or 12-month BTFs, as well as a possible complementary line according to demand.
Every 3-month BTF will be tapped twice to reach an outstanding amount of EUR4bn. Every 6-month or 12-month BTF line will be tapped three to five times, also to reach an outstanding amount of about EUR4bn. The 3-month, 6-month and 12-month issues will be distributed in order to give investors the largest choice in less than 3-month maturing paper.
4 - Managing the average maturity of debt
The minister has confirmed the objective of reducing the average maturity of the debt to 5 years and 6 months at the end of 2002. At the end of October 2001, this average maturity was 6 months and 95 days.
Along these lines, the AFT will forward the swaps programme initiated in 2001 and will be in a position to operate buybacks and switches.
To put things more precisely, notwithstanding possible buybacks of long term securities and under unchanged issuing policy conditions, the notional amount of 10-year receiver swaps needed to reach the objective would be about EUR30bn in 2002.
5 - 2001 Summary
The gross medium and long-term borrowings for 2001 amounted to EUR94.5bn, including EUR43.7bn of fixed-rate OATs, EUR8.8bn of linkers (OATi and OATI) and EUR42bn of BTANs. Moreover, EUR15bn of various securities have been bought back through four reverse auctions, several over the counter deals and the handing in of OATi for the newly-issued OATi.
The global reduction of interest rates in 2001 compared to 2000 and the substitution of newer lines have resulted in a reduction in the average burden of the debt: the average rate paid on BTANs fell to 4.46% at the end of 2001 (from 4.51% at the end of 2000), and on 10-year OATs to 6.17% from 6.37%.
The internationalisation of French debt holders also grew: the proportion of non-resident holders was 27.8% at the end of 2000 and reached 32% at the end of August, 2001.