In March 1996, the French government decided to issue an OAT linked to a new index tracking long-term yields, the “TEC 10" index. This decision was prompted by two objectives: meeting strong and diverse demand for such a product from investors and modernising the government’s floating-rate issues by creating a simpler benchmark yield that would be more representative of long-term yields and more in line with international practices.
The TEC 10 index was designed to be accessible to all French and international investors. The benchmark yield chosen is identical to the “Constant Maturity Treasuries” and “Constant Maturity Swaps” benchmarks already familiar to international investors. The TEC 10 index is calculated daily from the linear interpolation of the two OATs most closely matching the exact 10-year maturity on either side. These two OATs must have more than 20 billion francs in outstanding securities (approximately 3 billion euros). This means it corresponds to the yield of a notional OAT with a maturity of exactly 10 years.
The OATs benchmarked to the new index include two fully redeemed issues. The government issued these bonds with a fixed quarterly coupon. The OAT TEC 10 maturing on 25 October 2006 was the first to be issued by syndication on 9 April 1996. The government then tapped this issue at periodic auctions, to meet investor demand. A new security, maturing on 25 January 2009, was issued in March 1997. Sales reached 12.91 billion francs (1.97 billion euros) between May and July 1998, in response to strong market demand.
The outstanding amount of the two OAT TEC 10 issues reached 21.74 billion euros on 31 March 2002, breaking down into 11.89 billion euros for the OAT TEC 10 October 2006 and 9.85 billion euros for the OAT TEC 10 January 2009.
The OATs currently in issue pay fixed yields. Some OATs offer inflation-linked principal, as is the case of OATi and OAT€i issues. Up until 2009, there were also floating rate OATs linked to long-term yield benchmarks: On 9 April 1996, the French government issued the first floating rate OAT linked to a new index tracking long-term sovereign yields, the 10-year Constant Maturity Yield (TEC 10).
This issue modernised the French government's floating rate issues, while creating a simpler and more transparent benchmark yield that was more in line with international practices. The two OAT TEC 10 bonds issued in 1996 and 1997 have both been redeemed. They made such products more understandable for a wide range of investors, and investor interest in such bonds helped ensure the liquidity of both securities from the outset.
1. Benchmark yield
TEC 10: The 10-year Constant Maturity Yield (CNO-TEC 10) represents the yield to maturity of a notional OAT with a maturity of exactly 10 years. This yield is calculated from the linear interpolation of the secondary market yields of the two OATs most closely matching the exact 10-year maturity on either side.
Calculating the yield: This yield is calculated from the linear interpolation of the annual yields to maturity of the two Treasury securities most closely matching the theoretical 10-year maturity on either side.
The quotes are established on the theoretical settlement date in accordance with the practices on the secondary market and on the market segment concerned. At the time, this meant settlement at T+3 for OATs.
Benchmark OATs: Fixed-rate OATs redeemable at maturity with annual coupons and outstanding paid-up amounts in excess of 3 billion euros, with coupons paid on 25 January, 25 April, 25 July or 25 October.
Calculation and publication frequency: daily.
Publisher: Agence France Trésor. Agence France Trésor publishes the day’s TEC 10 value on its website and via the main financial information sites (www.aft.gouv.fr, Reuters <TRESORTEC10> page, Bloomberg TRESOR <GO>) in real time at around 3.00 p.m. The daily TEC 10 can also be found on the Reuters CNOTEC page.
2. Calculating accrued interest
“Predetermined" revisable rate: the upcoming coupon payment was set in advance and calculated in the same way as for a conventional bond (TEC 10).
3. Outstanding securities
The outstanding amount of the two OAT TEC 10 issues reached 21.74 billion euros on 31 March 2002, breaking down into 11.89 billion euros for the OAT TEC 10 October 2006 and 9.85 billion euros for the OAT TEC 10 January 2009.
10-year constant maturity rate (TEC10)
daily quotes
Source : Banque de France - Comité de Normalisation Obligataire
Download TEC 10 historical data on Banque de France website