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M. Thierry BRETON, Minister of Economy, Finance and Industry, has approved the indicative financing programme of the French Republic for 2007.
In 2007, the State budget deficit will amount to € 42bn and the redemption of long and medium term debt will amount to € 71.3bn. The State funding requirement will therefore come to € 113.3bn.
This funding requirement will be covered by medium and long term borrowing (OAT & BTAN) up to € 105bn net of buybacks, and the cancellation by Caisse de la Dette Publique of € 8.1bn of securities. Furthermore, a € 24.5bn increase of short term bills outstanding (BTF) will finance an increase in the Treasury cash account of € 15.9bn and widrawals from Treasury Special Accounts of € 8.4bn.
The funding programme implements the 2007 Budget which sets a € 33.7bn ceiling to the year-on-year increase of the long and medium term negotiable debt.
As in 2005 and 2006, French CPI and euro zone 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 2006 made it possible to reduce by € 15.6bn the amount of debt redemption maturing in 2007 and 2009. Throughout 2007 and depending on market conditions, AFT will implement buybacks of securities falling due in the following years, including at least € 8.1bn by Caisse de la Dette Publique.
M. Thierry BRETON underlined that this funding programme includes a € 3.1bn allocation of State asset sales proceeds to the Caisse de la Dette Publique, with a view to reducing debt issuance. As was the case in 2006, privatization revenues will be fully allocated to debt reduction.
1 - Long and medium-term borrowing in 2007
Amounts to be issued
Net issuance of medium and long-term securities will amount to €105bn. 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. €11bn or more), the remaining issuance being equally distributed between OATs and BTANs.
As in 2006, 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, in 2007, two new 5-year benchmarks and two new 10-year benchmarks. The first 10-year benchmark will be issued for the first time on Thursday, January 4th, 2007 (see the press statement released today on the creation of the OAT 3.75% April 25 2017). In addition, a new September 2009 BTAN will be created. At last, AFT will examine, in close cooperation with SVTs, the possibility of issuing a new 15-year benchmark.
All the benchmarks already created will be tapped to insure their liquidity by providing a sufficient outstanding.
Regarding inflation-linked bonds, AFT will examine the opportunity to issue new bonds; In particular, the issuance, in 2007, of a new 30-year index-linked bond will be examined. In addition, AFT will continue to issue existing OATis and OAT€is, in order to meet investor's demand.
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 4, 2007.
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.
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 2007
According to the programme decided by the Minister, the BTF outstanding amount will be increased by €24.5bn to reach a provisional outstanding of approximately €90.8bn at the end of 2007.
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 2006, issuance of the 3-month, 6-month and 12-month securities will be organised in order to maximise investors opportunities throughout the year.
As part of the new cash management policy, very short term BFT with maturing ranging from 2 to 6 weeks will be issued to manage infrequent cash situations.
3 - AFT's debt management indicators and average maturity of debt management
The average debt maturity strategy initiated in 2001 remains on hold. The interest rate swap programme will be revived as soon as market conditions are favourable. Subject to this condition, the average maturity target for year-end 2007 is 6 years and 5 months, i.e. a reduction of about 6 months over a one-year period. AFT will inform market participants before resuming swap operations.
4 - 2006 Status Report
The 2006 gross medium and long-term borrowing amounted to €121.1 bn in face value, with fixed-rate OATs accounting for €49.4bn, linkers (OATis and OAT€is) for €18.2bn and BTANs for €53.5bn. Furthermore, buybacks, executed by State and the Caisse de la Dette Publique, through one reverse auction and over-the-counter, totalled €15.6bn and included securities maturing in 2007 and 2009.
The net issuance programme for 2006 will amount €105.5bn. Thus for the first time, France was able to cut down its medium- and long-term debt issuance in 2006 by 14 billion euros from the initial figure of 119.5 billion euros to 105.5 billion euros.
Agence France Trésor
Corinne Dromer :
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