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UPDATE 1-France cuts 2013 debt issuance on lower deficit, buybacks
December 20, 2012 / 11:31 AM / 5 years ago

UPDATE 1-France cuts 2013 debt issuance on lower deficit, buybacks

By Daniel Flynn and Raoul Sachs

PARIS, Dec 20 (Reuters) - France will cut its medium- and long-term debt issuance next year to 169 billion euros, from 178 billion euros in 2012, thanks to a lower budget deficit and debt buybacks, the debt management agency said on Thursday.

Agence France Tresor (AFT) said it had trimmed its issuance plans for 2013 by 1 billion euros from a September forecast thanks to debt buybacks, which allowed it to lower the cost of debt redemptions next year.

AFT chief Philippe Mills said the agency had repurchased 23.5 billion euros of debt this year. That reduced the redemptions of debt maturing in 2013 by 18 billion euros and by more than 5 billion euros in 2014, he said.

Mills said the cost of financing in 2012 had fallen to a record low, thanks in part to the action of the ECB in holding down benchmark rates as well as investors’ confidence in France, particularly relative to euro zone neighbours like Italy and Spain regarded by markets as more fragile.

The average cost for medium- and long-term financing was 1.86 percent, beating the previous low of 2.53 in 2010. For short-term bills, or BTFs, the cost fell to a mere 8 basis points on average in 2012, he said.

“The financing conditions in 2012 have been historically low,” Mills said. “In 2013, the most likely scenario from market analysts for interest rates is one of a continued normalisation of the situation in Europe.”

“The rates of countries regarded as fragile are going to decrease and the rates for core countries will, in the case of Germany increase, and in the case of France probably remain stable or increase slightly,” he said.

The average maturity of French debt remained stable at around 7 years, Mills said.

France saved 2.4 billion euros in 2012 compared to budgeted debt servicing costs as interest rates were lower than expected. The actual cost of 10-year bonds was 2.7 percent, versus a budgeted figure of 3.7 percent, Mills said.

Mills said the AFT would drop the name BTAN used for medium-term debt and instead create new 2- and 5-year OAT benchmark bonds - the same name currently used for long-term debt issuance. Existing BTAN lines would still be tapped to maintain liquidity.

All new bonds issued from Jan. 1 would include Collective Action Clauses (CACs), in line with the treaty to create a permanent eurozone bailout fund, the European Stability Mechanism (ESM).

The repayment dates for the new OATs will be set to May or November - instead of the current dates of February, April, September and October - to make it easier to strip and reconstitute the newly issued securities with CACs.

The bid-to-cover ratio for medium- and long-term debt stood at 2.42 this year, and at 2.85 percent for BTFs, suggesting strong demand throughout the yield curve, Mills said.

AFT said it had reduced short-term debt, or BTFs, to 166.6 billion euros, equivalent to 12 percent of the total debt stock, versus 13.5 percent at the end of 2011 and well below the highs reached in 2009 during the financial crisis.

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