The principal method of issuing French government securities since 1985 has been the “bid price system”.
Participants compete in the auction on an equal footing through a transparent system of open bidding according to a planned issuance programme.
The bid price system consists of supplying securities at the bid price or the effective bid rate as opposed to the marginal price or rate
For the assimilability of a security, see the definition of a "fungible Treasury bond".
A currency is said to have legal tender status when a payment in that currency is accepted in exchange for any goods or services and in payment of taxes in a given geographical area. The euro has legal tender status in 19 European countries, which form the euro area, as well as in Kosovo and Montenegro.
A bond is a recognition of debt. The State, some public sector entities and major corporations issue bonds. The borrower promises to make annual interest payments until the bond matures.
The difference between the yield on nominal (non-indexed) and inflation-indexed bonds is called the break-even inflation rate. It represents, at first order, the inflation expected by market participants. Other factors than expected inflation are involved in the relative valuation of indexed bonds compared to nominal bonds, such as liquidity or the relative imbalance between supply and demand of indexed products (few issuers being present in this segment) compared to nominal bonds. Finally, an inflation risk premium is embedded in the yield of nominal bonds, unlike inflation-linked bonds.
In a debt contract, clauses that allow for an orderly and predictable restructuring of the debt with the agreement of a majority of the creditors. The aim is to facilitate restructuring by making it possible, as unanimity of creditors is required in the absence of such clauses. For a debt made up of different bonds, such as French long-term debt which includes several dozen OATs, there are two possibilities for restructuring:
- by proceeding with a vote of the holders OAT by OAT, and, when the restructuring terms are common to several OATs, with a second vote involving the holders of the OATs concerned: this is the so-called "double threshold" aggregation:
- by directly voting the holders of all OATs concerned by similar restructuring terms: this is known as "single threshold" aggregation.
OATs created before 1 January 2013 do not have a CAC, those created from 1 January 2013 have double threshold CACs. OATs created after the adoption of the agreement amending the Treaty establishing the European Stability Mechanism, scheduled for 2022, will have single threshold CACs. The legal regime applicable to CACs will then be set out in Articles D.213-25-1 et seq. of the Monetary and Financial Code.
In the past, a coupon was a piece of paper that would be detached from the security in return for payment of interest accrued or a dividend, or during another transaction (to prove that the bearer had traded in the coupon). Now that securities are paperless, the coupon refers to bond interest or share dividends.
Coupon payment: payment of interest or dividend.
A financial institution with bank status where security holders deposit their securities. The custodian needs to know at all times who owns what, what the status of these securities is (free, loaned, borrowed or pledged), and where this property is stored. Since dematerialisation, securities deposits are digitised; they are "secure" and extensively duplicated. The handling of electronic securities is immeasurably faster, more flexible and less expensive than paper securities.
Any sum of money borrowed by an individual or legal entity (debtor) that must be paid back to another individual or legal entity (creditor). Until the debt matures, the debtor will pay the creditor interest (a coupon) at an agreed rate (yield) every year on an agreed date.
Payment of amounts due when a security reaches maturity.
Synonym: redemption (for the debtor); collection (for the creditor).
The purpose of this type of transaction is to pre-finance the issuance programmes of future years and thus smooth the amounts to be issued over time. AFT takes market conditions into account when carrying out these operations: the repurchase of a security on the market depends on the liquidity of the security and its price. AFT reports monthly on the amounts repurchased, by security, during the month.
Delivery consists of handing over a security to the buyer following a financial transaction or trade.
Fixed-rate discount Treasury bills (BTFs) are similar to short-term Treasury bonds. They have an initial maturity of less than or equal to one year.
On 24 January 2017, Agence France Trésor launched its first green sovereign bond, the 1.75% 25 June 2039 green OAT for an amount of €7 billion. By becoming the first State in the world to issue a green bond for a benchmark size, France has thus confirmed its leading role in the implementation of the ambitions of the Paris Climate Agreement of December 2015.
France's green bonds target spending from the State budget and the Programme d'Investissements d'Avenir (PIA) on the fight against climate change, adaptation to climate change, protection of biodiversity, and the fight against pollution.
The funds raised are treated like those of a traditional OAT and managed according to the principle of budgetary universality. However, they are backed by an equivalent amount of eligible green expenditure, the envelope of which therefore limits, over the year in question, the possibilities of issuing green OATs (web page: https://www.aft.gouv.fr/fr/oat-verte).
This is the identification code for a security (share, bond, UCITS, etc.).
This international standard was adopted by the Paris Stock Exchange, in practice the company Euronext Paris, on 30 March 2003. It replaces the SICOVAM code, named after the interprofessional company for the clearing of securities, which was bought out by the Euroclear group at the end of 2000. The ISIN code is assigned to each new security, in principle definitively, by Euroclear France, which acts as the central depository.
The ISIN code is composed of 12 alphanumeric characters. For example, the first green OAT has the ISIN code: FR 001323433 3.
- The first two characters are the letters identifying the country of issue, in this case FR for France.
- Then 9 digits correspond to the security identifier. For securities existing before the adoption of the ISIN code, this is the SICOVAM code. For securities issued after the adoption of the ISIN code, these 9 digits are assigned by Euroclear France.
- Finally, the last digit of the ISIN code is a code verification key, calculated on the basis of an algorithm, to protect against counterfeit numbers. The method for checking the validity of an ISIN code is available in French on the Banque de France website: https://www.banque-france.fr/sites/default/files/media/2016/11/18/m07-1…
The adoption of the ISIN code in France was a major operation at the time, requiring Decree 2003-248 of 18 March 2003 adapting working hours in management companies, credit institutions and investment firms in order to implement a new securities identification system.
When a syndicated bond is being issued, the banks that prepare the bond, collect orders, allocate the bond based on supply and demand and set the price are known as “lead book runners”. There are also “co-lead book runners”, who participate in the bond issue, but to a lesser extent, and have fewer responsibilities.
A financial instrument or market is said to be liquid when buy and sell transactions can be carried out without triggering excessive variations in price.
Sum of money lent by a creditor temporarily to a debtor.
Synonyms: borrowings, credit; receivable, asset (for the lender); debt, liability (for the borrower).
Market makers are spot market operators who supply a price whenever they are contacted, regardless of the market situation.
Date of redemption established when a loan agreement is signed.
Synonym: redemption date.
On 15 September 1998, the State issued for the first time an OAT indexed on the French consumer price index ("OATi") (web page: https://www.aft.gouv.fr/fr/oati-presentation).
Another innovation took place in October 2001, with the issue of the first OAT indexed on the euro zone price index ("OAT€i") (web page: https://www.aft.gouv.fr/fr/oateuroi-presentation).
OATs (Obligations Assimilables du Trésor) are medium- and long-term Treasury securities with a maturity of 2 to 50 years.
The assimilation technique consists in attaching a new issue to an OAT already created and issued previously. The State thus has the possibility of issuing tranches of bonds whose issue price is adjusted by market developments, but whose characteristics remain identical to those of the initial issue. In this way, the State avoids a large number of bonds with different characteristics and ensures the liquidity of the outstanding issues. OATs are the only form of medium- and long-term financing for the State.
There are nearly seventy OATs in circulation, which are designated by their rate and maturity date (e.g. "OAT 0.00% May 25, 2032" or "OAT 0.50% May 25, 2072") and whose characteristics are shown on its title sheet published on the AFT website (https://www.aft.gouv.fr/index.php/fr/encours-detaille-oat).
A call option gives the holder the right to buy an asset at a fixed price at a point in the future up to a certain date. A put option gives the holder the right to sell the same asset under the same conditions. Tradable options are contracts that can be exchanged on regulated markets.
Face value of a security. A company’s share capital is X million euros divided into N shares with a par value of X/N euros. A bond has a par value of N euros: all French Treasury securities have a par value of one euro.
Par bonds are bonds that have a fixed rate of interest, in contrast to index-linked bonds.
The primary market issues new securities. It is the market for capital increases and bond issues. Compared to the secondary market, which sells “second-hand” securities, the primary market sells only “new” ones.
Sum of money equivalent to the market value of a good or service. The price is set by the interplay of supply and demand. Bond prices vary inversely to bond yields.
Offres non-compétitives : la pratique des ONC consiste à soumettre une quantité sans préciser le prix. Les ONC sont servies en priorité au prix moyen pondéré qui résulte de l’adjudication.
Assessment by agencies specialising in rating the soundness of corporate financial statements and financial instruments issued by economic agents.
Rating agency: a firm specialising in corporate credit ratings, i.e. in awarding scores based on the state of a company’s accounts or the financial instruments issued by an economic agent.
The act of a creditor of being repaid the sum lent. To collect: to demand the repayment of a debt.
Risk is the possibility, which is never zero, of losing all or part of an asset or its equivalent monetary value. Risk is at the very heart of financial activity: evaluating, spreading, assuming, diversifying and hedging risk are all tasks involved in the settlement of financial transactions. The price of a bond indicates the degree of risk incurred by the buyer. The riskier a particular transaction is, the more the collateral required will increase.
Counterparty risk: The risk that the buyer will not pay for what he or she has purchased, that the seller will not deliver what they have sold, that the borrower will not repay their loan or that the lender will not supply the loan funds they have promised (and for which they have taken guarantees). Also called default risk.
The secondary market is the market for securities already in circulation (created on the primary market). By ensuring investments remain liquid, the secondary market guarantees the quality of the primary market and the valuation of securities. Primary and secondary markets are therefore highly complementary.
A set of activities that accompany the life of a security. For bonds, they consist essentially of "coupon detachment", i.e. the collection of the interest paid on the securities. For shares, they consist of collecting the dividend and carrying out stock splits where appropriate. For all securities, they may also consist of exchanging them for other securities.
A financial instrument held for investment purposes. In France, securities are issued in electronic form.
For financial trades and transactions, settlement consists of a payment by the buyer or subscriber to the seller for the securities acquired and delivery of the securities by the seller.
Stripping is a technique that divides a bond into as many securities as there are coupon and redemption payments. The stripped bonds created in this way are sold and listed separately as zero-coupon bonds. There is specific demand for this type of instrument, called a strip, on the French debt market.
Group of banks that organise and oversee a large bond issue. It comprises lead book runners and co-lead book runners.
A syndicated issue is where a bank or a syndicate of banks buys all the securities to be placed with the public from the issuer. This is the preferred placement method for corporate issuers, as it was for the State until 1985.
An interest rate swap is based on the comparison of a variable interest rate and a fixed interest rate.At maturity, the counterparties exchange the difference in interest amounts, without any exchange of principal.
They are particularly suitable for hedging long-term risk in business.
The market for swaps has seen considerable growth and the banks play a key role in market-making.
Corporate treasurers like the flexibility of swaps, which enable them to choose the duration, benchmark variable interest rate and the notional value.
A swap between a bank and a company can be settled at any time by calculating the present value of the future fixed-rate flows at the market rate and comparing this to the initial notional value.
Swaps are also used on a regular basis to hedge the interest rate risk on variable or fixed interest rate assets.
The daily CNO-TEC N index, with a constant maturity of N years (N is between 1 and 30), represents the yield to maturity of a fictitious OAT with a maturity equal to N. The yield to maturity is obtained by extrapolating the annual yields to maturity of the two OATs with maturities closest to N.
A stock market transaction involving the exchange of a certain quantity of a given security at a certain price between two parties, each represented by a financial intermediary (investment company). The trade is time- and date-stamped on Euronext and then sent for clearing and settlement.
Synonyms: transaction, exchange.
A market operation involving the exchange of a certain quantity of a given security at a certain price between two parties, each represented by a financial intermediary (investment company).
Synonyms: trade, exchange.
Treasury securities are securities issued by the State to finance its debt. There are several types of Treasury securities: fixed-rate Treasury bills (BTFs) issued for a term of less than one year and fungible Treasury bonds (OATs) issued for a term of between 2 and 50 years. Some are reserved for institutional investors and others for the general public. Agence France Trésor (AFT) manages Treasury securities.
Said of an interest rate that is not constant throughout the duration of a contract, but which changes depending on outside factors, such as market rates (Euribor, Eonia) or statistical indices.
Bond price volatility stems mainly from the interest-rate risk that affects fixed-rate bonds. The price of a bond varies inversely to the market interest rate. Sensitivity is even greater when the coupon rate and the market interest rate are low.
Percentage used to calculate the bond coupon, expressed as a percentage. The yield is established when the bond is issued. It can be fixed or variable. If excessive, it is deemed “usurious”.
The yield curve illustrates the relationship between yeilds and their maturities. The curve generally, but not always, slopes upward because of the risk premium (i.e. long-term yields are higher than short-term yields).