France boosts debt issuance as redemption spike looms

PARIS: France will borrow more next year as it faces a wave of redemptions on bonds issued during the financial crisis, the public debt management agency said on Wednesday.

Agence France Tresor said it would issue 188.0 billion euros ($236.9 billion) of medium and long-term debt in 2015, net of buybacks, compared with 173 billion euros in 2014. That equals a record set in 2010.

"We've completed 94 percent of the (2014) programme and in reality we are going to keep issuing to take advantage of the very good financing conditions to pre-finance a big part of our 2015 programme," AFT chief executive Ambrose Fayolle said.

Presenting AFT's 2015 issuance plans to journalists, he said it bought back 25.7 billion euros in bonds maturing in 2015 and 2016 as it seeks to smooth out the flow of redemptions, which will reach a record 117.1 billion euros for bonds next year.

"We started buying back debt maturing in 2015 last year and accelerated buy-backs of 2015 maturities this year in light of the favourable market conditions in order to reduce redemptions in 2015," Fayolle said.

France has borrowed at a historically low level so far this year, with the weighted average interest rate on medium and long-term bonds at 1.44 percent in the first three quarters.

As a result, France's debt servicing costs are likely to be less than the 44.9 billion euros budgeted, Fayolle said. The cost was seen at 44.3 billion euros next year on expectations for 10-year bonds to yield 2.2 percent on average over the course of 2015 compared with 1.27 percent currently.

Fayolle said T-bills continued to enjoy firm demand despite negative yields at the most recent weekly auctions as buying them costs banks less than parking cash at the European Central Bank, which now has a negative deposit rate.

The amount of treasury bills expected to be issued this year was lifted by 4.2 billion euros as the deficit overshot expectations.

Blaming weak growth and low inflation, the government says the public deficit will widen this year to 4.4 percent of gross domestic product instead of cutting it to 3.8 percent as previously planned.

Fayolle said that AFT was seeing increased demand from yield-hungry investors for longer maturities, particularly from foreign central banks, and was adapting its issuance in accordance.