Exclusive: Agence France Trésor Head: ‘Do Not Expect Any Changes’ to 2023 Funding Target

17 May 2023

Exclusive: Agence France Trésor Head: ‘Do Not Expect Any Changes’ to 2023 Funding Target
- AFT's Rousseau sees ‘slightly higher demand’ for domestic inflation-linked products
- AFT's Rousseau: 10% inflation-linked target ‘not a fixed target but rather a soft one’
- AFT's Rousseau: ‘Don’t think de-anchoring is the main explanation’ for inflation swaps trading high
- AFT's Rousseau: Looks like resumption of money market activities by sovereigns ‘have not destabilised the market’ 

By Xavier D’Arcy – PARIS (Econostream) – France is currently unlikely to adapt its funding target for 2023, according to Agence France Trésor Chief Executive Cyril Rousseau.

In a recent interview with Econostream at AFT’s headquarters, Rousseau confirmed that France had issued 40% of its funding target for this year, a proportion which he said was in line with historical trends for the country’s issuance.

‘We do not expect any changes to our funding plan for 2023 at this time’, he said. ‘Our aim is to maintain predictability and transparency in our funding plan and avoid changing our targets during the year unless absolutely necessary.’

‘Our strategy is to prioritise our medium and long-term programme, and make adjustments to short-term debt first, if necessary’, he said.

France’s issuance had been ‘successful so far’, he said. The AFT had ‘already issued more than 40% of our target for 2023, which is consistent with our historical performance.’

‘We access the market regularly through auctions and strive to be predictable. The current market conditions are favourable for us to implement our strategy’, he said.

France was seeing ‘slightly higher demand’ for domestic inflation-linked products, relative to Eurozone inflation-linked issuance, he said. This was ‘due to dynamic structural factors for French inflation hedging, such as inflows into regulated saving product Livret A, which is linked to French inflation.’ The AFT’s announced strategy of having 10% of its issuance being inflation-linked was ‘not a fixed target but rather a soft one’, he said.

‘It does not mean that we aim for exactly 10% every year. There were times when the demand for those bonds was higher and we were above 10%, and there were times when the demand was lower and we were below 10%.’

Regarding euro 5y5y inflation swaps trading at historically high levels of late, Rousseau didn’t ‘think de-anchoring is the main explanation. Instead, it's more likely a build-up of inflation premia along with supply and demand effects.’

The ECB’s ‘gradual step-by-step strategy’ to reintroducing a ceiling on the remuneration of government deposits in the Eurosystem ‘appears to be effective’ at avoiding market turbulence, he said. He explained that since the reintroduction of the ceiling, France had ‘resumed our operations and started investing cash in the money markets again.’ It seemed that France’s actions, along with those of other cash managers, had ‘not destabilised the market’, he said.

Despite collateral scarcity fears rocking the German Bund market last year, he noted that ‘there was no scarcity of collateral in the French debt market’ and the French primary dealer repo facility ‘was not utilised in 2022 despite the collateral crisis.’

One reason for the lack of collateral scarcity ‘could be that the central bank did not hold as much French debt as German debt. Another reason could be that Banque de France was willing to lend its portfolio of securities, which was sufficient to balance the demand for collateral from the market without requiring us to intervene’, he said.

For the AFT to revive its swap programme, he said it would be necessary to ‘have a significant term premia that the state could save by entering into those operations.’