21 December 2005: Indicative State Financing Programme for 2006

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Press Conference (presentation of December 21, 2005)

M. Thierry BRETON, Minister of Economy, Finance and Industry, has approved the indicative financing programme of the French Republic for 2006.
In 2006, the State budget deficit will amount to € 46.9bn and the redemption of long and medium term debt will amount to € 78.3bn. Other Governement entities' debt taken over by the State will entail an additional redemption of € 2.5bn1. The State funding requirement will therefore come to € 127.7bn.

This funding requirement will be covered by medium and long term borrowing (OAT & BTAN) up to € 119.5bn, by a € 2.5bn increase of short term bills outstanding (BTF) and by a net change of € 5.5bn of the Treasury Special Accounts, the remaining (i.e. € 0.2bn) impacting the level of the Treasury cash account.

The funding programme implements the 2006 Budget which sets a € 41bn ceiling to the year-on-year increase of the long and medium term negotiable debt2. This increase is the lowest since 2002.
Short term debt is projected to reach approximately € 100bn at the end of 2006 from around € 97bn at end-2005.

As in 2004 and 2005, French CPI and eurozone HICP index-linked bonds will account for at least 10% of medium and long term notes issuance. AFT will be able to issue significantly more than 10% of its programme in inflation-linked bonds, if justified by demand.

Securities buybacks in 2005 made it possible to reduce by € 13.3bn the amount of debt redemption in 2006. Throughout 2006 and depending on market conditions, AFT will implement buybacks of securities falling due in the following years

M. Thierry BRETON underlined that this funding programme includes a € 10bn allocation of State asset sales proceeds to the Caisse de la dette publique, with a view to reducing debt issuance3. The Government has made a priority to control the debt and the 2006 financing programme is part of this policy. 

1 The State will take over debts of Caisse centrale de la Mutualité sociale agricole and Entreprises minières et chimiques (EMC). 

2 i.e. debt with a maturity of more than a year. 

3 This will imply a positive change of € 10 bn on the Treasury Special Accounts. On the other hand, withdrawals from several Treasury correspondents are to reach € 4.5 bn, hence a net change of Treasury Special Accounts of € 5.5bn. The bulk of these withdrawals correspond to a € 3bn redemption of a bond issued in April 2003 by ERAP and maturing in July 2006.


In billion euros 2006
 (budget bill 2006)
(December 2005)
Financing requirement
Long-term debt redemption 44.1 43.21
Medium-term debt redemption 39.9 35.11
Redemptions of debt taken over by the State 0 2.5
Budget deficit 46.8 46.9
Total 130.8 127.7
Financing sources
Medium- and long-term issuance (OAT/BTAN) net of buybacks 125.02 119.5
Net BTF change 0 2.5
Change in Treasury correspondents' deposits 5.5 5.5
Change in the current account at Banque de France 0.3 0.2
Total Financing sources 130.8 127.7

1 After buybacks.
2 Before buybacks made during theth quarter 2005, related to bonds failing due in 2006.



1 - Long and medium-term borrowing in 2006

Amounts to be issued
Net issuance of medium and long-term securities will amount to €119.5bn. As in the past, AFT will be allowed to operate debt buybacks and/or switches, depending on market conditions and financing needs.
Net issuance will be composed of inflation-linked bonds for at least 10% - i.e. €12bn or more, in particular if buybacks or switches occur- , of medium term notes (BTANs) for 50% and of long term OATs for 50%.
As in 2005, AFT will be able to issue significantly more than 10% of its programme in inflation linkers, if there is significant demand .

Benchmark Lines Issuance Policy
As in previous years, AFT will issue two new 5-year benchmarks. A new 10-year benchmark bond of maturity April 25 2016 will be created in the first semester. Taking into account the existence of the OAT October 2016 (created in 2001), a second 10-year benchmark could be created or not in the second semester, depending on market conditions. In addition, a new September 2008 BTAN will be created.
All the benchmarks already created will be tapped to insure their liquidity by providing a sufficient outstanding.
Regarding inflation-linked bonds, AFT, in close cooperation with SVTs, will examine issuance of new bonds as well as auctions of existing OATis and OAT€is. AFT will issue index-linked bonds on every auction month, i.e. every month except August and December.
AFT will examine with SVTs the developments of the floating rate bonds issuance strategy.

Auctions Schedule and Rules
AFT will not auction in August and December. OATs will be auctioned on every first Thursday of the month, and BTANs on every third Thursday. The first OAT auction will take place on January 5, 2006.
As regards the lines to be auctioned, AFT retains capacity to adjust to final demand as reported by the SVTs and tap non-benchmark lines or offer only one single line at any given OAT or BTAN auction.
As in 2005, index-linked bond auctions will take place on BTAN auction days, i.e. every third Thursday of the month, at 11:50 am (Paris time). 

2 - Short-term financing in 2006

According to the programme confirmed by the Minister, the BTF outstanding amount will be increased by €2.5bn to reach a provisional outstanding slightly under €100bn at the end of 2006.
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 additional line according to demand and to the needs of short-term cash reserve management.
As in 2005, issuance of the 3-month, 6-month and 12-month securities will be organised in order to maximise investors opportunities throughout the year. 

3 - AFT's debt management indicators and average maturity of debt management

The objectives and performance indicators for debt and cash management are described under the new Budgeting Law in the annual performance report (“PAP”) attached to the 2006 draft budget bill. In particular, the average debt maturity strategy initiated in 2001 is maintained. The interest rate swap programme will therefore be reactivated as soon as the market conditions are favourable. Subject to this condition, the average maturity target for year-end 2006 is 5 years and 11 months, i.e. a reduction of about 6 months over a one-year period. AFT will inform market participants before resuming swap operations.

4 -Debt and cash management

AFT will examine with SVTs how developments of short term market systems and instruments can benefit the management of the treasury of the State. 

5 - The SVT charter and the SVT selection

In partnership with SVTs, AFT will conclude the revision of the SVT charter, most contents of which will be made public. As every three years, the reselection of SVTs will occur mid-2006. 

6 - 2005 Status Report

The 2005 gross medium and long-term borrowing amounted to €126.3bn in face value, with fixed-rate OATs accounting for €58.2bn, linkers (OATis and OAT€is) for €17.1bn and BTANs for €50.9bn.
Furthermore, buybacks, executed through two reverse auctions or over-the-counter, totalled €16.0bn and concerned mostly securities maturing in 2006.
Net issuance thus meets the target set for the year, and the financing programme has been implemented as planned and published, as on previous years. The average maturity of debt after swaps was of 6 years and 33 days at December 31, 2004, and was of 6 years and 258 days at November 30, 2005, resulting from the interest rate swap programme's suspension and the increased issuance maturity.

Press contact
Agence France Trésor
Corinne Dromer