17 December 2015: Indicative State financing programme for 2016

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Michel Sapin, Minister for Finance and Public Accounts, has approved the indicative State financing programme for 2016.

In 2016, the fiscal deficit is forecast to reach €72.3bn. €125.0bn of medium- and long-term debt will fall due for redemption (after buybacks of €28.2bn in 2014 and 2015 of securities maturing in 2016), while other cash requirements are expected to total €1.2bn. The government borrowing requirement for 2016 is therefore forecast to reach €198.5bn.

This funding requirement will be covered by medium- and long-term borrowing (OATs) of €187.0bn net of buybacks, €2.0bn revenue from the disposal of shareholdings allocated to debt reduction and €9.5bn from other financing sources. Short-term debt outstanding (BTFs) will remain stable.

The financing programme is part of the 2016 French Budget Bill as submitted to the National Assembly in final reading this Thursday, December 17, which caps the net year-on-year increase in medium- and long-term negotiable debt at €62.5bn.

As in previous years, Agence France Trésor will adjust its debt issuance programme to meet demand and guarantee a liquid market for its securities. The programme stipulates that issued bonds linked to French or euro area inflation will account for approximately 10% of net medium- and long-term debt issues.

AFT may buy back debt in 2016 (nominal and index-linked BTFs, BTANs and OATs) depending on market conditions.

FURTHER DETAILS

1. Benchmark issues

AFT will issue one new benchmark maturing in February 2019, two new 5-year benchmarks, two new 10-year benchmarks, and one new 20-year bond. AFT will also examine the prospects for a syndicated issue of a 50-year bond in close consultation with the primary dealers (SVTs) depending on market conditions.

All benchmarks will be tapped to guarantee sufficient market liquidity.

AFT will issue a 5-year benchmark indexed to euro area inflation (OAT€i), and will consult the primary dealers before deciding whether or not to proceed with a syndicated issue of a 30-year benchmark OAT€i.

2. Auction rules and schedule

An auction of nominal and/or inflation-linked OATs may take place on the first Thursday of the month in August and December depending on market conditions and after consultation with primary dealers. During the other months of the year, OATs with a maturity of 7 years or more will be auctioned on the first Thursday of the month, and OATs with a maturity of 2-7 years on the third Thursday of the month. Auctions of nominal bonds will be held at 10.50am (Paris time) and auctions of inflation-linked bonds at 11.50am (Paris time). BTFs will be auctioned every Monday at 2.50pm (Paris time). AFT will inform the market of any changes to the schedule.

As in previous years, AFT reserves the right to adjust the amount of debt issued by tapping non-benchmark issues in response to demand from investors as estimated by the primary dealers. Based on advice from primary dealers, it may also decide to tap non-benchmark BTFs.

3. Managing average debt maturity

The strategy to reduce the average maturity of negotiable government debt initiated in 2001 remains on hold temporarily. The interest rate swap programme will resume if and when market conditions allow. AFT will inform the market before resuming the programme.

4. 2015 status report

In 2015, France continued to benefit from very favorable financing conditions. The average weighted yield of medium- and long-term debt issuance in 2015 stands at 0.63%, compared to a historic low of 1.31% in 2014, and an average of 4.15% from 1998 to 2008.

The gross nominal value of medium- and long-term debt issuance in 2015 stood at €220bn, consisting of €202.2bn in fixed-rate bonds (OATs and BTANs) and €17.8bn in inflation-linked bonds (OATi and OAT€i).

AFT bought back €24.8bn in medium- and long-term debt maturing in 2016 and €8.2bn maturing in 2017.

AFT projects the short-term debt (BTFs) outstanding to stand at €152.7bn year end, a reduction of €22.6bn compared to end-2014.

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