General debt-related data. page 3

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1 MonthlyBulletin n D e c e m b e r 1 6 Publication manager: Anthony Requin Editor: Agence France Trésor Available in Arab, Chinese, English, French, Japanese, Russian and Spanish Bloomberg TREX<GO> Reuters <TRESOR> News at Agence France Trésor page 1 Economic news page General debt-related data page 3 Secondary market page 5 Negotiable government debt page 6 The French economy and international comparisons page 8 Agence France Trésor is tasked with managing the government debt and cash positions under the most secure conditions in the interest of the taxpayer. News at Agence France Trésor AFT will maintain its flexible and innovative issuance strategy in 17 with the launch of a green OAT In a 17 market environment where the ECB sustains quantitative easing throughout the year, Agence France Trésor will continue to adapt its issuance policy to market developments. AFT will continue its policy of adjusting issuance to investor demand during the year to maintain the greatest liquidity possible in every segment of the yield curve. The year 17 is already promising to be a year of innovation, with the issue of a French government green bond, as announced jointly by Ségolène Royal (Minister for the Environment) and Michel Sapin (Minister for the Economy and Finance) in September 16. When market conditions permit, AFT will undertake the syndicated launch of the long-dated green OAT to serve as a benchmark bond (see box). In keeping with market demand, AFT will also issue a new benchmark bond maturing in February to serve as a -year long-dated benchmark bond. Investors welcomed the launch of an equivalent bond in 16 that made it possible to meet demand in the context of negative short-term yields. AFT will also issue one or two new 5-year benchmarks and two new 1-year benchmarks. In collaboration with primary dealers, AFT will also examine the prospects for a new syndicated issue of a 3-year bond, depending on market conditions. The funding programme calls for issuance of bonds linked to French and European inflation indices. As in previous years, such bonds will account for approximately 1% of net medium- and long-term debt issuance. AFT will issue a new 1-year benchmark bond linked to French inflation (OATi). Unless very strong demand arises in 17, issuance of a new 1-year benchmark bond linked to European inflation (OAT i) will take place in 18. All the new benchmark bonds will continue to be tapped so that outstanding amounts are sufficient to ensure a liquid market. AFT will innovate with the launch of the first green OAT in 17 The green OAT, which is now being planned, constitutes an eagerly-awaited innovation. As 16 draws to a close, Agence France Trésor continues to prepare plans for the new product in close collaboration with the Ministry of the Environment, defining a pool of eligible green projects and expenditures to be funded that relate to energy transition, ecology, the climate and the environment. The green OAT will be designed to fit into the French yield curve and, as such, it will enjoy the same liquidity as other OATs. In this respect, the creation of this new bond will be consistent with AFT s issuance strategy, with the goal of achieving benchmark status for the inaugural issue to ensure a liquid market. Like conventional OATs, the green OAT could then be tapped repeatedly to meet investor demand, thus maintaining a high level of liquidity on the secondary market. 1

2 UK France Netherlands Italy Germany Spain Germany Italy France Netherlands Spain UK Spain UK Italy Netherlands France Germany Spain Netherlands Italy UK Germany France Economic news A Hard Brexit Would Pose Risks to Intellectual Capital Carmen Nuzzo, Economist, Morgan Stanley Economics Research This article is based on research published by Morgan Stanley Research on October 1, 16. Intellectual capital has not featured prominently in the UK s Brexit debate. Yet, as a key input for innovation and productivity, it matters for maintaining the UK s prosperity and potential to grow. A hard Brexit that prioritises immigration controls over access to the single market could erode the UK s competitive edge in key sectors intensive in science and technology. Intellectual capital is about people s skills but also intangible assets, such as software, research and development (R&D) capabilities, as well as networks connecting universities, research partners and the corporate sector; it also includes property rights which protect innovative products. It is crucial for a country s ability to innovate and become more productive. Depending on the terms the UK negotiates, a hard Brexit could carry negative implications for the UK s wealth of intellectual capital, particularly in the area of research. The UK s R&D business spend is skewed towards hightech manufacturing (6%) and knowledge intensive services (3%). This has given it a competitive advantage in sectors such as pharmaceuticals, chemicals, aerospace, transport equipment, information and communication technology and financial services. The problem is not so much funding. The UK is a net recipient of EU research funds and the largest receiver of those allocated on a competitive basis (like the Netherlands if measured as a share of GDP). But these funds represent only.% of GDP and could conceivably be replaced by government funds or venture capital. A greater challenge is that the UK s ability to influence the direction of EU funding research could wane. Moreover, prospective migration restrictions could impede international collaboration which is key to research: it creates synergies, builds on the best expertise, provides access to equipment, reduces costs and facilitates the sharing of new ideas. Should there be a hard Brexit, the UK s ability to attract talent could diminish over time as well as the country s appeal as a base for new, shared pan-european research infrastructure. The extent of the threat to intellectual capital depends on how the Brexit deal is negotiated. True, the UK has an unrivalled business-friendly environment in the EU that is conducive to innovation and risk-taking, boasting low barriers to entrepreneurship, well-functioning institutions and a healthy venture-capital system. This advantage will not dissipate quickly, but a hard Brexit could risk a slow erosion of the UK s competitiveness and of its appeal to investors as a base from which to access the EU market to scale activity internationally. UK intangible investment now exceeds tangible investment bn UK business expenditure in R&D is skewed towards high-tech and high-knowledge sectors % High-Tech Manufacturing Structure of Business Expenditure in R&D Medium-to-Low-Tech Manufacturing High-Knowledge Market Services Low-Knowledge Market Services Intangible Tangible Source: UK Government s Intellectual Property Office, Morgan Stanley Research Source: OECD, Morgan Stanley Research Morgan Stanley Disclaimer: This article is based on research published for Morgan Stanley Research on 1 October 16. It is not an offer to buy or sell any security/instruments or to participate in a trading strategy. For important disclosures as of the date of the publication of the research, please refer to the original piece available at Brexit: Let's Talk About Intellectual Capital (1 October 16). For important current disclosures that pertain to Morgan Stanley, please refer to the disclosures regarding the issuer(s) that are the subject of this article on Morgan Stanley s disclosure website. NB: this Agence France Trésor forum offers economists an opportunity to express their personal opinion. Thus, the above article strictly reflects the author s view, and should not be construed as expressing the viewpoints of Agence France Trésor or the Ministry of the Economy and Finance.

3 General debt-related data Indicative auction schedule Short-term Medium-term Long-term Index-linked January 17 auction date settlement date February February 17 auction date / settlement date March / 6 Medium- and long-term negotiable government debt at 3 November 16 Nominal value of each line, in billion Medium- and long-term: securities issued during the year and total issuance at 3 November OAT /19 OAT 11/19 OAT / OAT 11/ OAT i 3/1 OAT /1 OAT 5/1 OATi 7/1 OAT / OAT 5/ OAT 1/ OAT 5/3 OATi 7/3 OAT 1/3 OAT 5/ OAT i 7/ OATi 3/5 OAT 5/5 OAT 1/5 OAT 11/5 OAT /6 OAT 5/6 OAT 11/6 OAT i 7/7 OATi 7/9 OAT i 7/3 OAT 5/31 OAT 1/3 OAT /35 OAT 5/36 OAT 1/38 OAT i 7/ OAT /1 OAT 5/5 OAT i 7/7 OAT 5/66 issued before 16 issued in 16 Issuance net of buybacks at 3 November Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Medium- and long-term: provisional maturity schedule at 3 November 16 Month Coupon Redemption Dec-16 Jan-17 Feb Mar-17. Apr May-17. Jun-17 Jul Aug-17 Sep-17 Oct Nov

4 1/9 1/1 1/11 1/1 1/13** 1/1* 3/15* 6/15* 9/15* 1/15* 3/16* 6/16* 9/16* General debt-related data Non-resident holders of negotiable government debt in second quarter of 16 As a % of negotiable debt outstanding expressed in market value Negotiable government debt by group of holders in second quarter of 16 Structure in % expressed in market value non-resident investors French insurance companies French credit institutions French UCITS 6.1 others (French) (*) figures revised quarterly (**) figures revised annually Source: Banque de France Source: Banque de France Negotiable government debt at 3 November 16 In euros Total medium- and long-term debt 1,83,9,7,17 Total stripping activity 6,919,1,1 Average maturity 8 years and 85 days Total short-term debt 13,393,, Average maturity 117 days TOTAL OUTSTANDING 1,66,685,7,17 Average maturity 7 years and 196 days Negotiable government debt and interest rate swaps at 3 November 16 End 13 End 1 End 15 End Oct. 16 End Nov. 16 Negotiable government debt outstanding 1,57 1,58 1,576 1,65 1,67 of which index-linked securities Medium- and long-term 1,83 1,35 1, 1,83 1,83 short-term Swaps outstanding Average maturity of the negotiable debt before swaps 7 years 6 years 7 years 7 years 7 years 5 days 363 days 7 days 18 days 196 days after swaps 7 years 6 years 7 years 7 years 7 years days 36 days 7 days 18 days 196 days

5 1/1 1/1 /15 /15 6/15 8/15 1/15 1/15 /16 /16 6/16 8/16 1/16 Secondary market Yield curve for French government securities End-of-month value, % 3 1 Average daily volume of medium- and long-term transactions y r 5 y rs 1 y rs y rs 3 y rs 5 y rs - Source: Bloomberg 11/1 11/15 11/16 Source: reporting by primary dealers in government securities, excluding flows arising from the Eurosystem public sector purchase programme. Total stripping and reconstitution 5 reconstitution stripping strips outstanding (->) Source: Euroclear Primary dealers, repo outstanding at end of month Fixed-rate Floating-rate Others 1/1 11/1 1/1 1/15 /15 3/15 /15 5/15 6/15 7/15 8/15 9/15 1/15 11/15 1/15 1/16 /16 3/16 /16 5/16 6/16 7/16 8/16 9/16 1/16 Source: reporting by primary dealers in government securities 5

6 Negotiable government debt Short-term debt at 3 November 16 Maturity Outstanding ( ) BTF 7 December 16 3,59,, BTF 1 December 16 6,885,, BTF 1 December 16,83,, BTF 9 December 16 6,99,, BTF January 17 7,9,, BTF 11 January 17 7,31,, BTF 18 January 17,17,, BTF 5 January 17 7,951,, BTF 1 February 17 6,76,, BTF 8 February 17 7,3,, BTF 15 February 17 6,55,, BTF February 17 7,79,, BTF 1 March 17 6,366,, BTF 15 March 17 6,9,, BTF 9 March 17 6,135,, BTF 1 April 17 6,1,, BTF 6 April 17 5,3,, BTF 11 May 17,11,, BTF May 17,97,, BTF 1 June 17,571,, BTF 19 July 17 3,979,, BTF 17 August 17 5,88,, BTF 13 September 17 5,871,, BTF 11 October 17 6,15,, BTF 8 November 17,81,, Medium- and long-term debt (maturing 16 19) at 3 November 16 ISIN Code Bond Outstanding ( ) Ind. Coeff. Face value Stripped ( ) Maturity 16 Maturity ,869,3,8 FR17353 BTAN 1.75% 5 February 17 16,6,, FR OAT 3.75% 5 April 17 7,3,, FR17669 BTAN 1% 5 July 17 19,53,, FR OATi 1% 5 July 17 18,73,3,8 (1) ,7,, FR OAT.5% 5 October 17 33,7,, Maturity ,97,891,51 FR OAT % 5 February 18 17,57,, FR16983 OAT % 5 April 18 31,53,, FR OAT 1% 5 May 18,56,, FR OAT i.5% 5 July 18 11,75,891,51 (1) ,57,, FR OAT.5% 5 October 18 9,5,, FR OAT 1% 5 November 18,65,, 15,, Maturity ,7,,66 FR OAT % 5 février 19 19,313,, FR OAT.5% 5 April 19 31,78,, FR11788 OAT 1% 5 May 19 3,95,, FR1853 OATi 1.3% 5 July 19 1,563,913, (1) ,7,, FR5791 OAT 8.5% 5 October 19 8,8,39,893 5,11,385,1 FR OAT 3.75% 5 October 19 35,1,, FR OAT.5% 5 November 19 8,737,, FR5795 OAT cap. 9.8% 31 December 19 3,896,553 () 6,69,15 (1) face value x indexation coefficient (face value if coefficient < 1) () Including coupons capitalised at 31 December 15; not open to subscription 6

7 Negotiable government debt Medium- and long-term debt (maturing in and beyond) at 3 November 16 ISIN Code Bond Outstanding ( ) Ind. Coeff. Face value Stripped ( ) Maturity 17,15,939, FR18518 OAT 3.5% 5 April 37,97,, FR OAT % 5 May,969,, FR15559 OAT i.5% 5 July,865,939, (1) 1.3,31,, FR OAT.5% 5 October 36,56,, FR OAT.5% 5 November,78,, Maturity 1 11,13,83,6 FR13135 OAT i.1% 1 March 1,96,9,1 (1) 1.366,8,, FR OAT 3.75% 5 April 1 39,35,, FR OAT % 5 May 1 1,85,, FR11376 OATi.1% 5 July 1 6,9,53,5 (1) ,85,, FR OAT 3.5% 5 October 1 39,891,, Maturity 97,73,55,1 FR571 OAT 8.5% 5 April 1,3,939,99 37,68, FR OAT 3% 5 April,73,, FR OAT % 5 May,31,, FR OAT i 1.1% 5 July 19,513,565, (1) ,99,, FR OAT.5% 5 October 3,5,, Maturity 3 15,1,361,93 FR57185 OAT 8.5% 5 April 3 1,66,195,93 5,66,5, FR OAT 1.75% 5 May 3 35,37,, FR OATi.1% 5 July 3 16,38,166, (1) 1.1 1,86,, FR OAT.5% 5 October 3 3,185,, 59,585, Maturity 77,9,737,96 FR OAT.5% 5 May 33,135,, 1,, FR11788 OAT i.5% 5 July 13,879,737,96 (1) ,618,, FR OAT 1.75% 5 November 3,35,, 6,, Maturity 5 91,33,3,918 FR OATi.1% 1 March 5 6,861,115,8 (1) ,88,, FR15177 OAT.5% 5 May 5 3,87,, FR57115 OAT 6% 5 October 5 6,39,98,118 3,11,96, FR OAT 1% 5 November 5 5,57,, Maturity 6 78,669,, FR19169 OAT 3.5% 5 April 6 35,81,, 1,13, FR OAT.5% 5 May 6 7,5,, FR13813 OAT.5% 5 November 6 15,333,, Maturity 7 9,818,59,8 FR11875 OAT i 1.85% 5 July 7 1,789,59,8 (1) ,789,, FR OAT.75% 5 October 7 35,9,, Maturity 8 3,815,557 FR5716 OAT zero coupon 8 March 8 3,815,557 (3) 6,3,63 Maturity 9,68,69,613 FR57118 OAT 5.5% 5 April 9 9,91,88,58 3,37,69,1 FR18613 OATi 3.% 5 July 9 1,976,81,155 (1) ,73,1, Maturity 3 39,99,5,51 FR OAT.5% 5 May 3 31,3,, 7,, FR OAT i.7% 5 July 3 8,76,5,51 (1) ,7,, Maturity 31 3,513,, FR OAT 1.5% 5 May 31 3,513,, 11,, Maturity 3 and later 1,669,63, FR OAT i 3.15% 5 July 3 1,63,76,8 (1) 1.8 1,16,, FR OAT 5.75% 5 October 3 3,8,3,6 11,8,157, FR176 OAT.75% 5 April 35 6,678,, 5,88,167, FR1315 OAT 1.5% 5 May 36 1,11,, FR13711 OAT % 5 October 38 6,53,,,837,11, FR17367 OAT i 1.8% 5 July 1,63,79,88 (1) ,986,, FR OAT.5% 5 April 1 9,9,, 7,,539, FR OAT 3.5% 5 May 5,,, 79,6, FR OAT i.1% 5 July 7,56,1,7 (1) 1.137,556,, FR OAT % 5 April 55 1,96,, 7,3,588, FR OAT % 5 April 6 11,918,, 5,97,78,1 FR13158 OAT 1.75% 5 May 66,39,, 8,, (1) face value x indexation coefficient (face value if coefficient < 1) (3) Revised on 8 March 16; not open to subscription 7

8 The French economy and international comparisons Most recent economic indicators Monthly government budget position end of October level General budget balance revenue expenditure Balance of special Treasury accounts General budget outturn * manufactured products Sources: Insee, Minefi, Banque de France Source: Minefi Public finances: deficit and debt As % of GDP deficit (left-hand scale) debt (right-hand scale) debt excluding impact of European guarantees debt (right-hand scale) debt including impact of European guarantees Source: Eurostat, Insee General government debt in 15 As % of GDP Sources: Eurostat (16), IMF (16), Insee (16) 8

9 The French economy and international comparisons French economic indicators: timetable Sources: Insee, Eurostat This publication, which is the exclusive property of AFT, is entirely protected by the provisions of the French Intellectual Property Code, particularly those provisions relating to copyright. Any reproduction of the content, in whole or in part, by any means whatsoever, without the permission of AFT, is strictly prohibited. As a result, the permission of the rights holder must be sought for any reproduction of the content exclusively for non-commercial purposes. Requests for permission must be submitted via to AFT's Publication Director at the following address: contact@aft.gouv.fr. Reuse of information must mention the source and the date of the reproduction, and must feature the copyright notice " Agence France Trésor". English translation: Centre de traduction des ministères économiques et financiers 9