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Mr. Francis Mer, the Minister of the Economy, Finance and Industry has decided on the indicative financing programme of the State for 2004. This programme outlines the proceedings for the financing of the State during the year 2004 according to the principles laid out in the programme for debt and cash management, attached to the draft Finance Bill for 2004.
As mentioned then, the State's medium and long-term borrowing requirements will amount to EUR122bn in 2004, as a result of an increase in redemptions of debt coming to maturity during the year.
Within this framework, the total amount of medium- and long-term (OAT and BTAN) issuance for 2004 is set at EUR122bn. After two years of increase in the outstanding amount of BTF, the liquidity of that market is satisfactory. Thus, the outstanding amount of BTF will be stabilised.
The amount of index-linked bond issuance, both for the French CPI- and euro zone HICP-linked bonds, will eventually represent at least 10% of the net issues. As in 2003, AFT will be able to issue significantly more than 10% of its program in linkers, if there is significant demand.
In line with Mr Mer's standing commitment to the policy of reducing the average maturity of the French State debt, the swap dealing programme will be resumed as soon as market conditions permit. In this respect, the aim for 2004 is to reduce the average maturity to 5.3 years.
Indicative State financing programme for 2004
1 - The major elements of the 2004 State financing programme
For 2004, the financing needs of the State will represent EUR122bn, due to an increase in redemptions.
The financing resources are limited to the net medium and long-term issues, representing EUR122bn. The outstanding amount of BTF will be stabilised.
2 - Long and medium-term financing in 2003
Amounts to be issued
The net issuance of medium and long-term securities will amount to EUR122bn. In 2004 as in the past, AFT will be allowed to operate buybacks and/or switches of debt, depending on market conditions and financing needs.
The gross issuance will be distributed as follows: at least 10% for inflation-linked bonds (i.e. EUR12bn or more, in particular if buybacks or switches occur), 45% for BTANs (i.e. EUR55bn) and 45% for fixed-rate OATs or floating rate OATs (i.e. EUR55bn).
As was the case in 2003, AFT will be able to issue significantly more than 10% of its program in linkers, if there is significant demand .
This programme does not take into account the possible issuance in foreign currencies.
Benchmark lines policy
As in previous years, AFT plans to issue two new benchmarks for 5-year bonds and two new benchmarks for 10-year bonds. These lines will be tapped so that their liquidity will be supported by a sufficient outstanding principal. Existing OAT or BTAN lines will be tapped in order to guarantee significant 2-year issues. In addition, a new March 2006 BTAN will be created.
As regards inflation-linked bonds, AFT, in close co-operation with its primary dealers, will examine the possibility of issuing new bonds in this market segment as well as reopening existing OATis and OAT€is. In order to give more visibility to market participants, every month that there is an auction AFT will issue index-linked bonds.
AFT could also reopen floating rate OATs and will discuss with the SVTs how its policy on this market should evolve.
Auctioning schedule and methods
In order to adapt the auctions to the large increase in secondary volumes and to take account of seasonal variations in the market, it has been decided to maintain the reduced number (20) of OAT and BTAN auctions in 2004. As a result, the average amount allotted at each auction will reach EUR5.5bn (notwithstanding the possible effects of buybacks). After consulting the SVTs, and in view of the satisfactory market liquidity, auctions will take place in April. For practical reasons the AFT will auction neither OATs nor BTANs in August and December. OATs will be auctioned every first Thursday of the month, and BTANs every third Thursday. Exceptionally however, the OAT auction due to take place on Thursday, January 1 will be postponed to January 8, while the following BTAN auction will be delayed until Thursday, January 22.
As regards the lines to be auctioned, AFT retains capacity to adjust the lines issued to final demand as feedback by the SVTs, by tapping non-benchmark lines or by auctioning one single line at any given OAT or BTAN auction.
Due to the greater maturity of the index-linked bond market, index-linked bond auctions will take place exclusively on BTAN auction days, i.e. every third Thursday of the month.
3 - Short-term financing in 2004
The development of the BTF market, initiated in 2002, has proved satisfactory. As a result, the outstanding amount of BTFs will be stabilised.
BTF 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 and to the forecast for short-term cash reserve management.
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 two to four 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 a wide choice in paper with a maturity of less then three months.
4 - Managing the average maturity of debt
The Minister has confirmed the policy of reducing the average maturity of French State debt. The swap dealing programme will therefore be resumed as soon as market conditions permit. In this respect, the objective for average maturity by year-end 2004 is 5.3 years, representing a reduction of about 6 months from year-end 2003. AFT confirms that it will inform the markets before resuming swap operations.
AFT may also pursue the programmed average maturity reduction through buyback and/or switch operations.
5 - 2003 Summary
The gross medium and long-term borrowing for 2003 amounted to EUR118.9bn, including EUR50.3bn of fixed-rate OATs, EUR16bn of linkers (OATis and OAT€is) and EUR52.6bn of BTANs. Moreover, EUR7.4bn of various securities will have been bought back through two reverse auctions, numerous over-the-counter operations on securities maturing in 2004. The amount announced for the 2003 financing programme has, as in previous years, been respected.