2008 - Agence France Trésor - AFTC3BAF1F0-F068-4305-821D-B8B2BF4F9A… · in 2008 9,802 transactions ... NET COST OF DEBT Outturn 2007 Outturn 2008 2009 Supplementary Budget Act

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BTF, BTAN and OAT prices along with technical information relating to them are provided by :

REUTERS<TRESOR>BLOOMBERG TRESOR<GO>

ANNUAL REPORT2008

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Agence France Trésor Annual ReportPublication Director : Philippe MillsPublisher : Agence France TrésorTranslation : Centre de traduction des ministères économique et financier Design and production : Agence France Trésor - Bleu Equipage CommunicationAGENCE FRANCE TRÉSOR139 rue de Bercy - Télédoc 287 - 75572 Paris Cedex 12 - FranceTel : +33(1) 40 04 15 00 - Fax : 01 40 04 15 93

CONTENTS

A MESSAGE FROM THE CHAIRMAN . . . . . . . . . . . . . . . . .

ORGANISATION CHART . . . . . . . . . . . . . . . . . . . . . . . . .

PROFILE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

KEY FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ECONOMIC ENVIRONMENT . . . . . . . . . . . . . . . . . . . . . . .

MANAGING THE STATE’S DEBT . . . . . . . . . . . . . . . . . . . .

PROACTIVE MANAGEMENT OF THE STATE’S CASH POSITION . . . .

R ISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .

S IFT - AFT’S INFORMATION SYSTEM . . . . . . . . . . . . . . . .

F INANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONTACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Agence France Trésor Annual ReportPublication Director : Philippe MillsPublisher : Agence France TrésorTranslation : Centre de traduction des ministères économique et financier Design and production : Agence France Trésor - Bleu Equipage CommunicationAGENCE FRANCE TRÉSOR139 rue de Bercy - Télédoc 287 - 75572 Paris Cedex 12 - FranceTel : +33(1) 40 04 15 00 - Fax : 01 40 04 15 93

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4

The financial crisis that started in the third quarter of 2007 continued throughout

2008, affecting all market compartments, as well as the real economy. Central

banks and governments responded to the widespread increase in risks and

the rising cost of liquidity in an effort to ease credit terms.

The French government set up the SPPE (Société de Prise de Participation de

l’État - Corporation for State Equity Holdings) in mid-October to strengthen

banks’ solvency ratios. The SFEF (Société de Financement de l’Économie

Française - Corporation for Financing the French Economy) was set up to

grant government guarantees to enable credit institutions to provide stable

financing for businesses and households. In December, the government

also decided to launch a €26 billion stimulus plan to increase public capital

expenditure, support the lowest income groups and protect jobs. These three

measures testify to the State’s role in supporting businesses and households

in times of crisis.

Rating agencies have put France in the front ranks of the group of major

countries in the best position to cope with and overcome the shocks stemming

from the financial turmoil and economic difficulties.

As volatility surged on all financial markets, AFT’s long-term strategy, which

is based on the transparency, regularity and liquidity of French Treasury

securities, provided a guarantee that was highly appreciated by investors.

This strategy ensures taxpayers that financing is obtained at the lowest cost,

under the most secure conditions.

Ramon Fernandez

Head of the Treasury and EconomicPolicy Directorate General, Chairman of AFT

A Message from the Chairman

ANNUAL REPORT / 2008AgENCE FRANCE TRÉSOR

A Message from the Chairman

The principles of regularity, transparency and liquidity were backed up by a more flexible

approach to obtaining market financing. The first experiment with this greater flexibility took

place in September 2007 and it was applied systematically in 2008. The approach consisted

of tapping off-the-run issues, as well as benchmark issues, and auctioning securities with

residual maturities that fell between the usual points on the yield curve (3-4 years

and 6-7 years). The more flexible approach also includes broader indicative ranges of the

amounts to be raised at the auctions. Offering a wider range of securities facilitated access

to market financing and helped maintain bid-to-cover ratios for all debt instruments at their

historical averages. More specifically, the bid-to-cover ratio for BTANs and OATs came out

at between 2 and 3 overall.

All in all, medium-term and long-term issues increased to z128.5 billion in 2008. Outstanding

short-term issues increased from €78.5 billion to €138.5 billion as investors clamoured for

safe and liquid securities. Agence France Trésor capitalised on the strong demand for Treasury

securities to obtain preliminary financing for some of the 2009 borrowing requirement at the

end of 2008, in order to provide the necessary resources for implementing the economic

stimulus plan from the very beginning of the new year.

In addition, the Treasury continued to oversee issuance to prevent any cash holdings by the

State that are surplus to the requirements of sound management of its debt. The State coped

with the surge in volatility on the money market. Once again, dynamic and secure management

of the State’s cash holdings, along with those of government agencies, social bodies and local

authorities, led to a further reduction in the overall precautionary balances held on the Treasury’s

single account in 2008.

Ramon Fernandez

5

6 6

AGENCE FRANCE TRÉSOR

STRATEGY COMMITTEE

The Strategy Committee assists AFT in its management of the State’s debt and advises it on the broad outlines of its issuance policy. The Committee also helps AFT implement debt management principles and procedures.

The Strategy Committee Members are:

CHAIRMAN

Mr Jacques de LAROSIÈRE

Former governor of the Banque de France and Adviser to the Chairman of BNP Paribas

MEMBERS

M. Peter FISHER

Former Vice-President of the Federal Reserve Bank of New York, Managing Director of BlackRock Asia

M. Jean-Louis FORT

Former Secretary general of the Banking Commission

M. Francesco GIAVAZZI

Professor of Economics at Bocconi University (Milan)

M. Jean-Pierre HALBRON

Former Deputy Chief Executive at Alcatel

M. Emmanuel HAU

Member of the Management Board of Compagnie Financière Edmond de Rothschild

M. Philippe HILDEBRAND

Vice-President, Swiss National Bank

M. René KARSENTI

Executive President of the International Capital Market Association

M. Ng KOK SONG

Managing Director of government of Singapore Investment Corp

M. Bertrand de MAZIERES

Director general of Finance at the European Investment Bank (EIB)

Organisation chart

RAMON FERNANDEZ

Head of the Treasury and Economic Policy Directorate general, Chairman of AFT

PhiliPPE MillS

Chief Executive

ANThONy REquiN

Deputy Chief Executive

Strategy Committee

ANNE BlONDy-TOuRET

Cash Management

FRANCk CAilliS

Back Office / Risk Management

JEAN-PAul RENNE

Operational ResearchDebt Management

CÉCilE MOuTONCyRil ROuSSEAu

Macroeconomics

ivAN ODONNAT

Information

PiERRE SAlAüN

Information Technology

DANiEl BOulASÉBASTiEN lOBEllE

AlAiN MERCy

Secretary General


Organisation chart Profile

Profile

AGENCE FRANCE TRÉSOROur mission: managing the State’s debt and cash positions in the best interest of taxpayers and

under the most secure conditions.

Our strategy: AFT has a long-term perspective while remaining as close as possible to market

participants. AFT does not try to beat the market.

Our commitments: guaranteed liquidity, full transparency and a determination to reconcile

innovation and security.

CASH MANAgEMENT POLICY> Based on an agreement with the Banque de France aimed at optimising interest earned on

deposits;

> With a target of a balance of €100 million on the State’s single account at the end of each day, after

debits and credits totalling some €31 billion daily.

ISSUANCE POLICY> Perpetuating France’s long-held values of transparency, regularity and simplicity;

> Innovating to build an integrated interest rate market in the euro zone.

RISK MANAgEMENT AND BACK OFFICE UNIT> Manages the risks inherent in financial transactions;

> Tracks each transaction through to completion.

ETHICS> All public-sector and private-sector personnel adhere to strict ethical commitments;

> Regular audits are conducted by internationally-renowned firms.

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Key figures

OPERATIONS

35 27employees including civil servants

RESOURCES AND CAPITAL EXPENDITURE IN 2008

€6.1 million

TRANSACTIONS: Total number of transactions(cash transactions, auctions, swaps, reverse repos, syndications and hedging)

in 2007

6,804transactions

or 26.9 per day

in 2008

9,802transactions

or 38.6 per day

CASH MANAgEMENT in 2007 in 2008Average amount of debit and credit transactions

posted to the State’s account€23.04bn per day €30.80bn per day

Percentage of transactions in excess of €1m

notified in advance by local authorities and their

agencies95% 93%

Average end-of-day balance

• Target: €100 million€96m €85m

Interest on investments

• Deposits

• Reverse repos

EONIA +0.0781 %(on unsecured deposits)

EONIA -0.0278 %(on repos)

EONIA -0.0078 %(on unsecured deposits)

EONIA -0.004 %(on repos)


Key figures

DEBT MANAgEMENT in 2007 in 2008

Net borrowing requirement €104.8bn €164bn

BTF issuance€189.6bn

50 auctions€317.1bn

52 auctions

Weighted average yield 3.94% 3.61%

Issuance of BTANs and OATs

€97.5bn30 auctions

+ 1 syndication

€128.5bn30 auctions

+ 1 syndication + 1 exchange

auction

Weighted average yield 4.24% 4.13%

Outstanding negotiable debt at the end of 2008€1,016.6bn*

Apparent average cost(medium-term and long-term

fixed-rate debt)

at December 31, 2008

4.32%

Average residual maturity of debt at December 31, 2008

Before interest rate

swaps

6 yearsand 292 days

After interest rate swaps

6 yearsand 276 days

of which 65.6% held by non-residents

Outstanding interest

rate swaps at December 31, 2008

€28bn

*Including index-linking value

NET COST OF DEBT Outturn 2007 Outturn 2008

2009

Supplementary

Budget Act

Net cost after interest rate swaps €39.3bn €44.3bn €42.9bn

Gross cost of negotiable debt €42.3bn €47.4bn €45.9bn

Interest paid on correspondents’ deposits €585.2m €749.0m €488.5m

Investment income and interest earned on account €666.2m €736.4m €432.9m

Income from interest rate swaps €272.8m €155.6m €50m

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RISK MANAgEMENTNumber of incidents out of 22,800 transactions and financial flows

10 incidentsthat decreased the balance at the Banque de France

36 incidents

that did not change or increased the

balance at the Banque de France

8 incidentsrelated to the systems in the broadest sense

PROMOTION OF TREASURY SECURITIESin 2007: 19 roadshowsArgentina, Brazil, Canada, Chile, China, Colombia, Denmark, Dubai, Finland, Hong Kong, India, Italy, Japan,

Norway, Russia, Sweden, Switzerland, United Kingdom and United States.

in 2008: 25 roadshowsAbu Dhabi, Algeria, Austria, China, Czech Republic, Egypt, Hong Kong, Hungary, India, Indonesia, Israel, Japan,

Kazakhstan, Korea, Libya, Malaysia, Qatar, Saudi Arabia, Singapore, Slovakia, Taiwan, Thailand, Ukraine,

United Kingdom and United States.

CONSULTANCY IN 2008> Single Payment Agency (negotiating a loan)

> Fonds de Financement des Prestations Sociales Agricoles (FFIPSA) (taking over bank loans)

> Entreprise de Recherches et d’Activités Pétrolières (negotiating a loan)

> Corporation for State Equity Holdings (defining financing policy)

> Corporation for Financing the French Economy (coordination of issuance policies)

> Ministry of Defence (hedging of oil risk)

> Ministry for the Economy, Industry and Employment (hedging contributions to international organisations)

> Ministry of Foreign Affairs (hedging contributions to international organisations)

> Advisory services for various public bodies


Outstanding medium-term and long-term debt at December 31, 2008 (at par value, �bn)

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2025 2028 2029 2032 2035 2038 2040 2055

11

COOPERATION AND TRAININg IN 2008> Start of a cooperation and assistance programme with the Moroccan Treasury

> Multilateral technical assistance (Central Bank of West African States, Central Bank of Central African States, IMF)

> Bilateral technical assistance bilatérale (Indonesia, Vietnam)

> Hosting delegations at AFT (Russia, Serbia)

Source: Agence France Trésor

Key figures

11

ANNUAL REPORT / 2008AgENCE FRANCE TRÉSOR1212

ECONOMICENVIRONMENT

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

March 07 June 07 Sept 07 Dec 07 March 08 June 08 Sept 08 Dec 08

0

50

100

150

200

250

300Sub-investment grade non-financial names (ITraxx Crossover 5 years, lefthand scale)

Financial names (ITraxx Financials Senior 5 years, righthand scale)

Average 5-year CDS premiums for a panel of European companies (basis points)*

13

Economic environment

In 2008, the crisis on the credit markets worsened and spread to all economic and financial sectors, leading to

a sharp fall in growth and inflation around the world. government authorities responded with much looser monetary

and fiscal policies. Under the circumstances, the yields paid by States for long-term and short-term financing reached

exceptional lows.

WORSENING FINANCIAL CRISIS

Credit marketsInvestors’ risk aversion intensified in 2008, as can be seen in the continuing increases in credit-risk premiums demanded

by the holders of European 5-year corporate bonds. Corporate yields shot up in March, when Bear Sterns collapsed. There

was a second, very sharp surge in yields starting in September, after the failure of Lehman Brothers. At the end of the year,

the premiums for 5-year CDS on sub-investment grade non-financial corporations (ITraxx Crossover index) and on financial

corporations (ITraxx Financials Senior index) stood at 1,030 and 120 basis points, respectively. Furthermore, the failure of

Lehman Brothers led to a shutdown of the primary market for corporate bonds between mid-September and the end of

October.

Source: Bloomberg

* : 1 basis point on a CDS protecting €10m in debt is equivalent to a cost of €1,000 per year

ECB standing facilities

EONIA volume

ECB marginal lending and deposit facilities and overnight transactions (€bn)

0

50

100

150

200

250

300

350

Dec 07 Feb 08 Apr 08 June 08 Aug 08 Oct 08 Dec 08

ANNUAL REPORT / 2008AgENCE FRANCE TRÉSOR14 ANNUAL REPORT / 2008AgENCE FRANCE TRÉSOR14

Money markets Money markets, which had already been under great pressure since the crisis triggered by subprime

mortgages in the United States in the third quarter of 2007, suffered substantially from mistrust

between banks and their reluctance to lend to each other. This situation, which precipitated the

failure of Lehman Brothers, saw transactions dry up and a sudden jump in short-term interest

rates and risk premiums. More specifically, the volume of overnight interbank lending transactions

in the euro zone dropped from €70 billion before the failure of Lehman Brothers to less than

€30 billion at the end of September and futures trading virtually disappeared following

the withdrawal of undertakings for collective investment and foreign central banks. At the same

time, banks made more use of the ECB’s marginal lending and deposit facilities. The total

outstanding transactions of the ECB’s standing facilities increased sharply from an average of a

few hundred million euros before the failure of Lehman Brothers to more than €240 billion after.

Source: Bloomberg

WORLD GROWTH HALTS AND INFLATION SLOWS SHARPLYThe worsening financial crisis triggered falls in equity prices, negative wealth effects, higher

borrowing costs and a sharp contraction in international trade. Under these circumstances the

quarter-on-quarter gDP growth rate in the United States slumped in the third quarter to -0.1%,

following 0.7% in the second quarter. America’s growth fell off sharply at the end of 2008 and posted

a contraction of 1.6% in the fourth quarter. growth in the euro zone started to slow down in the

second quarter, dropping from 0.7% in the first quarter to -0.3%. The slump was limited to -0.2%

in the third quarter, but deepened to -1.5% in the fourth quarter. France’s growth was also down

sharply in the fourth quarter to -1.2%, after staying flat in the first three quarters of the year.

France United States

Japan Germany

Euro zone

Quarter-on-quarter gross domestic product growth

Year-on-year change in consumer prices

-4

-3

-2

-1

0

1

2

Q1.2008

United StatesJapan

Euro zoneUnited Kingdom

(in%)

(year-on-year change in%)

-1

0

1

2

3

4

5

6

Apr 07 Aug 07 Aug 08Dec 07 Dec 08Apr 08

Q2.2008 Q3.2008 Q4.2008

France United States

Japan Germany

Euro zone

Quarter-on-quarter gross domestic product growth

Year-on-year change in consumer prices

-4

-3

-2

-1

0

1

2

Q1.2008

United StatesJapan


(in%)

(year-on-year change in%)

-1

0

1

2

3

4

5

6

Apr 07 Aug 07 Aug 08Dec 07 Dec 08Apr 08

Q2.2008 Q3.2008 Q4.2008

15


15

QUARTER-ON-QUARTER GROSS DOMESTIC PRODUCT GROWTH

Source: Bloomberg

At first, the worldwide inflationary pressures that emerged at the end of 2007 continued to grow, as

oil and commodity prices continued to rise. Then, in the third quarter of 2008, the rise in consumer

prices slowed suddenly as world growth slumped and caused oil and commodity prices to drop.

YEAR-ON-YEAR CHANGE IN CONSUMER PRICES

Source: Bloomberg

Central bank refinancing rates

United StatesJapan


(%)

0

1

2

3

4

5

6

7

Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08


Response of central banks and governments The pressures that emerged on financing markets, with the drying up of interbank lending, led monetary

authorities to ease their intervention procedures in the third quarter of 2007. Procedures for injecting

liquidity into the system were strengthened and expanded in 2008, with longer maturities on lending

facilities, a broader range of eligible counterparties and eligible collateral for bank refinancing and

closer international coordination between monetary authorities. More specifically, the ECB instituted

unlimited access to fixed-rate euro refinancing at a rate close to the main key rate for all maturities

between one week and six months, along with access to fixed-rate dollar and Swiss franc refinancing

for maturities of three months or more.

In addition, monetary policies were loosened dramatically and massively all over the world. In

October 2008, the Bank of Canada, the Bank of England, the ECB, the Federal Reserve Bank, the

Bank of Sweden and the Swiss National Bank organised a concerted easing of their key rates. More

specifically, the United States Federal Reserve introduced a zero rate policy, similar to the one introduced

in Japan at the end of the 1990s. The Fed continued the easing started back in September 2007 with

7 rate cuts (including one unscheduled cut), taking its key rate from 4.25% down to 0.25% at the end

of the year. At first, the ECB was primarily concerned about rising inflation and raised the rate for its

main refinancing operations by 25 basis points to 4.25% in July 2008, following six months with no

change. It then left its key rate unchanged until the beginning of October, when it initiated a series

of cuts that took the rate down to 2.50% in December 2008.

CENTRAL BANK REFINANCING RATES

Source: Bloomberg

10-year government bond yields

United States France Spread (righthand scale)

(%) (basis points)

Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08

0

1

2

3

4

5

6

7

- 2 0 0

- 1 0 0

0

1 0 0

2 0 0

3 0 0

4 0 0

5 0 0

17


17

government measures during the year fell into three categories: providing guarantees for banks’

medium-term financing, increasing the capital of financial institutions, implementing fiscal stimulus

plans to boost growth and limit the impact of economic difficulties on the banking situation.

The French government created two vehicles in October 2008 to restore confidence in the banking

sector and to ensure continued financing for the economy. The first is Corporation for State Equity

Holdings (SPPE), which will make up to €40 billion available to banks to improve their solvency ratios

and the second is Corporation for Financing the French Economy (SFEF), which can issue up to

€265 billion in government-guaranteed securities in order to provide stable financing for resident

banks. In December, the French government also presented a €26-billion economic stimulus package

equivalent to 1.2% of gDP aimed at increasing public capital spending, contributing to financing for

non-financial corporations, protecting jobs and helping the lowest income groups.

MONETARY POLICY EASING AND GREATER DISPERSION OF TREASURY SECURITY YIELDSYields on Treasury securities showed an overall increase in the major industrialised countries up until

June 2008, spurred by strong and persistent inflationary pressures. After that, as inflation slowed and

the economic outlook turned gloomy, Treasury securities played their role fully as refuge investment

vehicles, leading to a sharp fall in yields. The rally grew much stronger after the failure of Lehman

Brothers.

With the economic crisis, investors have flocked to the safest and most liquid assets. However, the

size of the fall in bond yields varied, depending on the issuers. The spread between long-term American

bonds and the equivalent French securities continued to widen in 2008. Ten-year government bond

yields fell to 2.20% in the United States and 3.40% in France at the end of the year, representing

falls of 180 basis points in the United States and 100 basis points in France.

10-YEAR GOVERNMENT BOND YIELDS

Source: Bloomberg

Yield differentials for different euro zone states

(%) (differentials from the average, basis points)

-1,00

-0,50

0,00

0,50

1,00

1,50

2,00

Jan 07 March 07 May 07 July 07 Sept 07 Nov 07 Jan 08 March 08 May 08 July 08 Sept 08 Nov 08

France Spain GreeceGermany Italy NetherlandsIrland


Spreads between the euro zone countries were at their widest since the creation of the single

currency, as the chart below shows.

YIELD DIFFERENTIALS FOR DIFFERENT EURO ZONE STATES


The flight to quality benefited government security markets in the euro zone to varying degrees. It

tended to be detrimental for smaller countries, which usually have less debt and less liquid securities,

and offer a less diversified range of financing instruments. In addition, governments started to issue

massive amounts of debt to finance the various national economic stimulus packages. Consequently,

investors’ perception of solvency risks in the countries deemed to be most vulnerable might have

changed. In this respect, Standard and Poor’s recent downgrading of its long-term credit ratings for

such countries as Spain, greece and Portugal and its change of Ireland’s rating watch from “stable”

to “negative” contributed to widening spreads in the euro zone. All in all, spreads increased for

southern European countries, especially greece, Ireland and, to a lesser extent, Italy. On the other

hand, german yields continued to fall, and so did French yields, to a lesser extent.

19


2020 ANNUAL REPORT / 2008AgENCE FRANCE TRÉSOR

MANAGING THE STATE’S DEBT

Outturn of the 1996-2008 borrowing programme(€bn)

-40

-20

0

20

40

60

80

100

120

140

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

OAT i and €i 2y BTANs 5y BTANs 10y OATs 15y OATs 30y OATs 50y OATs Off-the-run securities Buybacks

21

Managing the State’s debt

2121

REGulARiTy, TRANSPARENCY AND INNOVATION

One of Agence France Trésor’s objectives is to minimise the cost of debt for taxpayers under the

most secure conditions. AFT’s strategy for achieving this objective relies on dynamic management of bonds and interest-rate risk

management using a portfolio of derivatives. Debt management performance is measured using objectives that combine

security and effectiveness.

The policy for the primary issuance of State debt must be tailored to meet investors’ needs, while upholding the principles of

regularity and transparency. It must ensure a deep and liquid market for Treasury securities that enables France to issue debt

at the lowest cost to the taxpayer.

OUTTURN OF THE ISSUANCE PROGRAMME IN 2008Total medium-term and long-term issuance net of buybacks stood at €128.5 billion in 2008, representing an increase of

€12 billion compared to the amount announced in the financing programme at the end of 2007. The amount includes

€11.5 billion, which was allocated to financing for Corporation for State Equity Holdings (SPPE).

The highlights of the 2008 issuance programme were:

• Gross medium-term and long-term borrowing in nominal terms came to €132 billion, with €63.9 in fixed-rate OATs (including

€1.4 billion of the October 2038 OAT issued as part of the exchange on December 4, 2008), €52.6 billion in fixed-rate

BTANs (including €0.8 billion in BTANs with residual maturities of less than one year issued as part of the BTF auction on

July 21, 2008) and €15.5 billion in inflation-linked securities (BTAN€i, OATi, OAT€i).

• In addition, the State bought back €2.3 billion in OATs and BTANs maturing in 2009 in a series of over-the-counter transactions

and €1.1 billion in securities maturing in 2032 were bought back as part of the exchange on December 4, 2008.




The total issuance of medium-term and long-term securities, net of buybacks, stood at €128.5 billion.

As announced in December 2007, new benchmark securities were created throughout the year, with

the issue of two 10-year OATs, two 5-year BTANs and one 2-year BTAN. The benchmark 15-year

OAT (OAT October 25, 2023), the 30-year OAT (OAT October 25, 2038) and 50-year OAT (OAT April

25, 2055) were tapped for €15 billion to meet structural demand for long-term securities, which

remains firm.

Furthermore, with the impact of the financial crisis on market operations in general, and on fixed-

income markets in particular, a more flexible issuance policy, which was first tried in September

2007, was introduced in 2008. Under this policy, AFT periodically taps old issues again, in addition

to tapping the benchmark issues. Spreading issuance over a wider range of securities facilitates

market absorption and limits the impact of an auction of a given security on its price in order to

save taxpayers money. The “off-the-run” securities were issued as part of the announced auction

schedule. A total of €22.7 billion were sold at 14 of the 20 auctions of fixed-rate securities, including

€3.8 billion in securities maturing in 3 to 4 years and €8.1 billion in securities maturing in 6 to

7 years. AFT also widened the indicative ranges of amounts to be raised at the auctions. This

flexibility enables AFT to fine-tune the supply of securities to suit investor demand for them as

closely as possible.

A new benchmark 15-year bond indexed on European inflation was launched through syndication in

March 2008. Following the initial issuance of €3 billion, this issue was tapped for €1.1 billion in

auctions held in September and November. The new issue, following in the footsteps of the OAT€i

July 25, 2040 launched in March 2007, furthers the build-up of the long ends of the yield curves

indexed on French and euro-zone inflation respectively.

The auction calendar also remained the same, with issues of nominal OATs on the first Thursday

of each month and issues of inflation-linked BTANs and OATs on the third Thursday of each month

(except August and December). In addition, in response to a proposal from Primary Dealers and to

meet structural demand, an exchange auction was held on December 4, 2008.

The outstanding amount of short-term securities increased by €59.8 billion, from €78.5 billion to

€138.3 billion, with strong demand from investors seeking safe and liquid securities following the

failure of Lehman Brothers. A new line of 3-month BTFs was issued every other week and tapped

again the following week. A total of up to four issues was offered at the BTF auctions, including

BTAN and OAT issues with residual maturities of less than one year, in order to match investor

demand as closely as possible. As is customary, all of the auctions were prepared in close collaboration

with the primary dealers.

AFT’s FirsT exchAnge TrAnsAcTionAgence France Trésor carried out a bond exchange

in which securities from an old 30-year benchmark

issue, the oAT 5.75% october 25, 2032, could be

exchanged for a current 30-year benchmark issue,

the oAT 4% october 25, 2038. This was the first time

AFT carried out such a transaction. it was a response

to strong demand from investors and intermediaries

for 30-year oATs.

After the exchange, €1,367 million oAT 2038 were

issued and €1,129 million oAT 2032 were bought

back. The mean exchange ratio was 82.57 securities

bought back for 100 securities issued. only bids of

82.49 securities or more for 100 new securities were

served (limit ratio). AFT also set a minimum ratio for

bids when it announced the transaction. The mini-

mum ratio was set at 81 old securities for 100 new

securities.

This active debt management transaction has

no impact on the state’s borrowing programme. it

illustrates AFT’s longstanding strategy to promote

liquidity for French securities at every point on the

yield curve so as to have as smooth a yield curve as

possible with no pressure points.

AFT has not ruled out similar transactions in the

future.

23


The table below shows the amounts of each maturity auctioned each month. Unlike previous years,

the table shows the amounts issued with maturities that are not traditionally benchmark maturities. For

example, €3.8 billion was issued with maturities of 3 to 4 years, and €8 billion was issued with maturities

of 6 to 7 years. The residual amount of off-the-run securities issued in 2008 covers maturities of 2, 5 and

10 years, with amounts of €3.5 billion, €2.5 billion and €5.3 billion respectively. The chart on the outturn

of the 1996-2008 borrowing programme also shows how the issuance structure has changed in relation

to the 12 previous years.

2008 ISSUANCE (in €bn)

JAN. FEB. MARCh ApRIl MAy JUNE JUly SEpT. OCT. NOV. DEC.

2 yrs 1.2 1.8 2.7 5.3 2.0 1.9 3.0 3.1

3-4 yrs 1.1 1.4 1.3

5 yrs 6.1 2.9 0.9 2.7 3.1 4.4 3.2 3.2 3.3

6-7 yrs 2.6 1.8 1.3 1.2 1.2

10 yrs 3.1 4.4 1.8 5.8 2.4 3.4 4.2 3.5 4.8 4.7

15 yrs 1.9 1.6 2.0

30-50 yrs 2.9 1.4 1.6 1.1 1.0 1.4*

oATi /€i BTAn€i 1.7 3.0 1.4 1.6 1.8 1.9 1.3 1.5 0.6 0.7

Source: Agence France Trésor* exchange auctionOrange figures denote new securities

MOST ACTIVE PRIMARY DEALERS IN 2008The ranking of the most active primary dealers in 2008 was compiled according to the criteria in

the primary dealer charter, which was revised in 2006. A total of 100 points were awarded to the

20 primary dealers*. The points were weighted 40% for participation in auctions, 30% for activity on

the secondary market and 30% for qualitative considerations.

On this basis, the primary dealers that scored more than the theoretical mean of 5 points were :

1/ BNP Paribas

2/ Barclays Capital

3/ Société Générale

4/ Royal Bank of Scotland

5/ HSBC

6/ Calyon

7/ JP Morgan

8/ UBS

9/ Deutsche Bank

* ABN AMRO and Lehman Brothers are no longer qualified as primary dealers, leaving 17 primary dealers at the end of 2008.Note: Further information about primary dealers’ performance with regard to each criterion was released in 2009.The list of primary dealers can be viewed on the AFT website www.aft.gouv.fr


DEBT MANAGEMENT INDICATORSThe debt management indicators are submitted to Parliament under the annual performance plan of

programme 117 “Cost of Debt Service and the State’s Cash Position”. The 2008 results for these

indicators are as follows:

OBJECTIVE 1 SECURING COVERAGE OF THE ISSUANCE PROGRAMMEThe primary objective of Agence France Trésor is to ensure the security of the State’s financing

transactions. The security of auctions can be measured by comparing the volume of bids to the

amount auctioned. For this purpose, OATs and BTANs should be distinguished from BTFs, which

show higher bid-to-cover ratios on average (Indicator 1.2). In forecasts, the thresholds set for bid-to-cover

ratios are in line with the levels at which the market deems that an auction is well covered.

All of Agence France Trésor’s auctions were covered in 2008. The average bid-to-cover ratio for

medium-term and long-term securities (OATs and BTANs) stood at 256%, which is in line with the

average bid-to-cover ratio of 253% for the period from 2003 to 2007. The lowest bid-to-cover ratio

was 120% and it was recorded in early March 2008.

The average bid-to-cover ratio for BTFs was stable at 260%, compared to 277% in 2007. The lowest

bid-to-cover ratio for a BTF auction in 2008 was 136%.

The lowest ratios were seen in early March, when many bond folios were liquidated around the

world, especially by hedge funds, as part of the financial turmoil that was to push Bear Stearns to

the brink of bankruptcy. The State’s issuance strategy was adjusted by opening up old bond issues

again and increasing the number of issues at each auction. Primary dealers also made efforts in the

distribution of securities and the result of these combined actions was to secure auctions for the

rest of 2008.

INDICATOR 1.1 UNCOVERED AUCTIONS AT DECEMBER 31, 2008

UnitNumber

2006 2007 2007 2008 2008 2009 2009

Actual Forecast Actual Forecast Actual Forecast Target

0 0 0 0 0 0 0

INDICATOR 1.2AVERAGE BID-TO-COVER RATIO AT DECEMBER 31, 2008

%2006 2007 2007 2008 2008 2009 2009

Actual Forecast Actual Forecast Actual Forecast Target

BTF auctions 269 200 277 200 260 200 200

OAT and BTAN

auctions239 150 306 150 256 150 150

AcTiVe ProMoTion oF TreAsUrY secUriTiesAFT, working with the support of the primary

dealers, continued its active policy to promote

Treasury securities by taking part in roadshows

and meetings with investors. such activity is

aimed as much at explaining the government’s

perception of the economic environment in its

role as an issuer as it is aimed at promoting the

AFT’s financial products to the world’s leading

financial institutions, especially when new

products are launched. in 2008, roadshows took

AFT managers to other european countries, the

United states, Japan, china, southeast Asia,

india, the Middle east and north Africa to

capitalise on investor interest in euro-denominated

securities in those areas. AFT also continued

its technical cooperation, particularly with

emerging countries in the franc area.



25


OBJECTIVE 2IMPROVING BOND DEBT MANAGEMENT CHOICESAFT must meet the State’s borrowing needs and follow the auction schedule over the fiscal year.

This means that AFT must make choices as to the pace of programme implementation over the year

and the selection of maturities issued on a given auction day. Its objective is to implement these

choices as efficiently as possible. AFT calculates the following two indicators to measure the

efficiency of its issuance choices:

• THE TIMINg INDICATOR compares the results obtained with the actual issuance policy to the results

that would have been obtained by implementing the issuance programme in a linear fashion each

day. Therefore, the actual results are compared to those of an automated system that would issue

a constant volume of the full range of maturities each trading day so that, by the end of the year,

it has issued the same outstanding amount of each maturity as AFT has under its issuance policy.

In this case, any positive or negative differences in the AFT’s actual performance revealed by this

indicator would stem from its timing choices, as well as from the fact that auctions are held on

predetermined dates for operational reasons.

• THE ALLOCATION INDICATOR compares AFT’s actual strategy to the strategy set out in the line-by-line

issuance programme that AFT proposes at the beginning of the year. The indicator compares the

differences in the end-of-year value of the portfolio of securities actually issued and the value of the portfolio

set out in the programme as originally announced. Both portfolios would have been issued at the same

dates, but they would contain different proportions of the various maturities. This indicator measures the

consistency of AFT’s choices in response to primary dealers’ advice and the specific market conditions

that caused AFT to deviate from its original programme.

Both of the control systems reflect the specific results associated with one of the two parameters

left up to AFT’s judgment: the distribution of the overall issuance volume over time and the selection of

maturities issued at each auction. The differences between the performance of the actual issuance

and the simulated issuance of each maturity are measured at market value for both indicators in

order to integrate both the resulting interest savings and the expected interest savings in the future.

The performances for each product and each maturity are then expressed in comparison to a

simulated 10-year benchmark rate in order to facilitate the interpretation of the various results. The

latter are expressed in 10-year equivalent basis points. A plus sign (+) indicates that AFT performed

less well than the control systems. These simulations incorporate conventional medium-term and

long-term bonds, as well as inflation-linked bonds. However, BTFs, which are issued in a virtually

linear manner, with very regular volumes each week, are not covered.

It should be noted that AFT has very little room for manoeuvre in practice. It has to issue a given

volume of securities and its action must be predictable in order to avoid taking the market by surprise.

This means that in practice it cannot aim at large fluctuations around the simulated control results.

Furthermore, the market reacts to changes in supply and demand and anticipates them. This means

that the yield of bond starts to rise as soon as an issue is announced. Consequently, a strategy that

is passive, with linear issuance or issuance according to a preset programme for the year, is bound

to perform less well than the control system. It also follows that any launch of a new issue will be

detrimental to actual performance compared to the simulated control system. These constraints

must be kept in mind when interpreting the targets and the results.

Timing indicator: issuance of 10-year OATs (2007)

1 000

3 000

5 000

7 000

01/01/2008

02/01/2008

03/01/2008

04/01/2008

05/01/2008

06/01/2008

07/01/2008

08/01/2008

09/01/2008

10/01/2008

11/01/2008

12/01/20082

2.5

3

3.5

4

4.5

5

Volume issued (lefthand scale, in �m)Average yield (righthand scale, in %)

Forecast volumes (lefthand scale, in �m)Yield (righthand scale, in %)


• TIMINg INDICATOR: A differential of +4.1 basis points was obtained in 2008. This means that the

programme carried out by AFT only deviates from the simulated linear issuance control programme

by +0.041% in terms of average borrowing costs for the equivalent of debt maturing in 10 years. This

performance falls within the ±10-basis-point target range for the indicator, which means that the yields

obtained at the auctions are a good reflection of general interest-rate developments over the year.

INDICATOR 2.1TIMING INDICATOR

Difference between the performance of the actual strategy and that of a simulated linear issuance programme (measured at market value and expressed in 10-year equivalent basis points). Source: Agence France Trésor

• ALLOCATION INDICATOR: A differential of +0.5 10-year equivalent basis points means that the

programme implemented by Agence France Trésor deviated by only +0.005% from the 10-year equivalent

control programme of normative issuance following a pre-determined pattern. This performance suggests

that the adaptation of the pre-determined programme required to adjust for changes in demand in 2008

entailed virtually no added cost.

INDICATOR 2.2 ALLOCATION INDICATOR

Difference between the performance of the actual issuance programme and the simulated performance of the control strategy set at the beginning of the year (measured at market value and expressed in 10-year equivalent basis points).Source: Agence France Trésor

INDICATOR 2.3 ISSUANCE OF 10-YEAR OATs

Unit:Basis points (0.01%) on equivalent 10-year debt

2005 2006 2006 2007 2007 2008 2008 2009 2009

Actual Forecast Actual Forecast Actual Forecast Actual Forecast Target

-1.6 +10 to -10 -7.8 +10 to -10 -10 +10 to -10 +4.1 +10 to -10 +10 to -10

Unit:Basis points (0.01%) on equivalent 10-year debt

2005 2006 2006 2007 2007 2008 2008 2009 2009


-0.1 +10 to -10 -2.1 +10 to -10 -3.9 +10 to -10 +0.5 +10 to -10 +10 to -10


27


OBJECTIVE 3MANAGING THE AVERAGE MATURITY OF DEBT AFTER SWAPSThe indicator used for this purpose is the average maturity of the State’s negotiable debt after

swaps. The average maturity of debt after swaps decreased slightly from 7.1 years at the end of

2007 to 6.8 years at the end of 2008. Monitoring the average maturity of debt is part of a strategy

developed in 2001. The strategy calls for the State to aim to reduce the average maturity of debt

carrying high long-term yields. The debt is reduced by means of swaps so as not to disrupt the

issuance policy, which aims to meet as much of the demand from investors as possible. On the

other hand, when yields are at historic lows, the swap policy is not implemented and the average

maturity automatically increases as a result of new issuance.

The target average maturity after swaps was 6.6 years at the end of 2008, but this only made sense

if the swap programme was resumed. This target corresponds to a reduction of 0.5 years in the

average maturity after swaps compared to the end of the previous year, as has been the case every

year since 2001. The targets for later years can only be set with reference to the outturn for the

current year.

As part of the certification process for the State’s financial statements for 2006, AFT made a commitment

to the State Audit Office to update its risk assessment model in order to confirm the effectiveness of

using swaps to hedge the State’s negotiable debt.

Therefore, AFT carried out modelling work to modernise the econometric model used to assess the

performance of the swap portfolio, relying on the most recent historical data to estimate the model.

In 2007, following a preliminary phase of work, the model was subjected to an external assessment by

Ernst & Young. The audit firm deemed that the approach used is based on sound principles and complies

with best practices in this area. Ernst & Young’s recommendations, which focused on documentation for

the model and internal control, were incorporated into the model later. The resulting work was examined

and validated by Deloitte in the fourth quarter of 2008.

INDICATOR 3.1 AVERAGE MATURITY OF DEBT AFTER SWAPS

* Key:

The forecast for 2008 called for a decrease of 6 months in the average maturity of debt, assuming that

market conditions made a resumption of the swap programme possible. Long-term yields remained

relatively low compared to historical yields in 2008 and, consequently, the amount of outstanding swaps

giving the State these yields did not increase. However, active issuance of BTFs at the end of 2008 meant

that the average maturity of debt was automatically reduced from 7.1 years at the end of 2007 to 6.8

years at the end of 2008.

Initially, the constitution of a swap portfolio reduced the average maturity by 63 days. Since the swap

programme was suspended, the contribution of the swap portfolio to the decrease in the average maturity

of debt fell to 22 days at the end of 2007 and 16 days at the end of 2008.

Unit:year

2005 2006 2006 2007 2007 2008 2008 2009 2009


6.6 5.9 7.0 6.5* 7.1 6.6* 6.8 6.3 N/A

2828

PROACTIVE MANAGEMENT OF THE STATE’S CASH POSITION


29

ENSuRiNG CONTINUOUS FINANCING FOR THE STATE

AND USING THE CASH HOLDINGS OF THE STATE AND TREASURY CORRESPON-DENTS IN THE BEST INTERESTS OF TAxPAYERSThe Constitutional Council set out the management objectives for the State’s cash holdings in its ruling of December 29,

2003: “The advance notice requirement instituted by the law in question is designed to improve management of the State’s

cash position through better anticipation of major cash flows into and out of the Treasury account and thereby making more

effective use of the funds deposited with it by local and regional authorities and their public agencies. In so doing, this obligation

contributes towards making good use of public funds, which is a constitutional requirement, and it is helps avoid a debit

balance on the Treasury’s account, thus ensuring compliance with Article 101 of the Treaty Establishing the European

Community, which prohibits the Banque de France from granting advances to government agencies.” This ruling highlights

and provides a legal basis for the two objectives set for the State treasurer: ensuring the State’s financial continuity and

proactive management of its cash holdings.

AFT adapted its management of the State’s cash holdings to changes in financial conditions in 2008, while ensuring

compliance with these core principles.

Even greater vigilance and responsiveness to primary dealers’ demand was required in 2008, while maintaining maximum

security in cash management. AFT adapted its overnight investment policy in response to the exceptional circumstances

stemming from the deepening crisis on the interbank market at the end of September 2008.

As part of the structural commitment to optimise government debt since 2006, the two core principles underlying the

management of the State’s cash position have been supplemented with a requirement to avoid any cash holdings that are

surplus to requirements for sound management of the State’s debt. This optimisation of the cash position with regard to

debt led to a reduction in the average precautionary balance on the Treasury’s single account since the middle of 2006.

The State’s cash position made a contribution to government debt on December 31, 2007 that was the same as at the end

of 2006. This was achieved by adjusting issuance and pooling the cash holdings of general government agencies. On the

other hand, sound management at the beginning of 2009 required a €25-billion increase in the account balance at December

31, 2008 . The balance on the Treasury account had to be increased at the end of 2008 to provide preliminary financing for

support measures for the financial sector, for the State’s contribution to the Strategic Investment Fund and for the stimulus

plan for the French economy. The increase in the account balance enabled AFT to manage the State’s debt and cash position

under optimum conditions of security at the beginning of 2009. This means that the cash position profile for early 2010 will

be smoother than in 2009, which could make it possible to reduce the account balance on December 31, 2009.

1/ Including €10 billion in consolidated investments

Proactive management of the State’s cash position


THE INSTRUMENTS MANAGED BY AFT UNDER THE TERMS OF THE CONSTITUTIONAL BYLAW ON BUDGET ACTS (LOLF)AFT manages three sets of special accounts:

01. The “Cost of Debt Service and State’s Cash Position” programme and the Trading Account for “State Debt and Cash Management”

Trading account No. 903 for “State Debt and Cash Management” records transactions under two

sections :

• The first section records transactions relating to management of the State’s debt and cash position,

except for futures transactions. Three times a month, the first section of the account is replenished

from the “Cost of Debt Service and State’s Cash Position” programme No. 117 in the general

budget, which makes it possible to track the net cost of debt in the general budget. This cost stood

at €44.464 billion in 2008 ;

• The second section of the account records State debt and cash management transactions involving

futures carried out as part of currency or interest rate swaps, or the buying and selling of options and

futures on government securities.

02. Three programmes and cost-sharing accounts for ”Advances to Various State Agencies and Bodies Managing Public Services“

“Advances to Various State Agencies and Bodies Managing Public Services” covers three

programmes for advances to the Single Payment Agency (AUP) to provide preliminary financing

for Common Agricultural Policy subsidies (Programme No. 821), advances to bodies that manage

public services and are not part of the State (Programme No. 823), and advances to State agencies

(Programme No. 824).

These advances are paid out of the cost-sharing accounts. They enable the State to provide funds

primarily to meet temporary or urgent cash needs in order to ensure the continuity of the government’s

action or to implement emergency measures. Advances are granted for a limited period under the

following conditions

• There is certainty about both the amount of the funds to be used to repay the advance and the legal

and technical possibility of obtaining the funds.

• The advances are financially neutral for the State. This is ensured by charging interest that is at least

equal to the cost of the State’s short-term borrowing.

03. Trading account for “Hedging the State’s Financial Risks”This trading account records futures transactions carried out to hedge the State’s exchange rate risk

and price risks that affect the implementation of its action in specifically identified ways. This trading

account does not record transactions relating to the management of the State’s negotiable and

non-negotiable debt or its cash holdings.

More specifically, the transactions on this account concern hedging France’s contributions to the

International Development Association (IDA), the global Environment Facility (gEF), the Asian

Development Fund (ADF), the African Development Fund (ADF), the Inter-American Development

Bank Multilateral Investment Fund (MIF-2), and the UN for peacekeeping operations and mandatory

contributions, as well as hedging military fuel supplies against oil price risks.

3/ Article 24 LOLF

The sTATe’s AccoUnT:one singLe AccoUnT AnD 6,840 sUB-AccoUnTsin financial terms, the state’s cash position is

the balance of all of the financial movements

carried out by some 5,000 public accountants,

who each have one or more transaction

accounts. As of December 31, 2008, the Treasury

account was made up of 6,840 transaction

accounts.

in its capacity as the state’s banker, the Banque

de France centralises these transactions in real

time and posts them to a single account called

the “Treasury Account”.

in practice, the transactions posted to the

state’s account correspond to :

> state budget transactions, such as tax and

quasi-tax revenues, current expenditure and

capital expenditure;

> Treasury correspondents’ transactions, meaning

the transactions of bodies that are required to

deposit their funds with the central government

(local authorities, national and local public

bodies, etc.);

> AFT’s transactions relating to medium- and

long-term financing for the state and mana-

gement of its cash holdings (redemption of

bonds at maturity, interest payments, margin

calls, debt issues, buybacks, loans, repo

transactions, etc.)

2/ On December 31, 2007, there were 7,376 sub-accounts. The decrease in the number of transaction accounts stems from the merger of the Public Accounting Directorate General and the Directorate General of Taxes, which made it possible to streamline the accounts.

31


Thrice-monthly

replenishment

<------------------

General budget

Trading accountstate Debt and cash

Management

Programme:

cost of Debt service and the state’s

cash Position

estimated appropriations

Section 1

Transactions

relating to primary

debt and cash

management

Action 1

Action 2

negotiable debt

non-negotiable debt

Action 3 state’s cash position

Balance estimated overdraft standard expenditure

Section 2

Active debt

management

transactions involving

derivatives

Balance included in

----------------->

non-standard expenditure

Budget Act

Balanceoverdraft limit

ENSURING A CREDIT BALANCE ON THE STATE’S SINGLE ACCOUNT EVERY DAY

AFT ensures that the State’s cash position is always adequate to settle the financial transactions posted

to the single account under the most secure conditions.

For this purpose, AFT monitors the execution of flows in and out of the Treasury account with the

Banque de France in real time. These cash flows stood at approximately €30.80 billion per day in

2008, compared to €23.04 billion in 2007 and €22.7 billion in 2006). AFT also supervises the daily

reporting of the cash positions of the State and the Treasury correspondents.

One of the distinctive features of management of the State’s cash position is that this position

includes all of the financial flows from “Treasury correspondents”, as well as those arising

from the activity of the State in the strictest sense. The Treasury correspondents’ transactions

account for more than half of the daily debits and credits posted to the single account. This

means that the State’s single account with the Banque de France provides real-time pooling

of cash debits and credits from central government agencies and their local branches (43.9%

of daily flows), national public bodies (20.8%), local authorities and local public bodies (30.2%),

along with a number of other bodies (5.1%), of which the Caisse des Dépôts et Consignations

ranks first.

4/ Business days only

05

10152025303540455055606570

Outstanding end-of-month Treasury correspondents' deposits and spontaneous balanceof the Treasury's account in 2008

Correspondents’ end-of-month deposit balances since December 2006

(€bn)

(€m)

Jan 08 Feb 08 March 08 Apr 08 May 08 June 08 July 08 Aug 08 Sept 08 Oct 08 Nov 08 Dec 08

RegionsHospitalsFinancial organisations

DépartementNational public bodiesLocal authorities, Local Development Directorate

Municipalities & public housing authoritiesForeign governments & foreign organisationsOther correspondents

Other local bodiesEuropean CommunitySpontaneous balance of the Treasury’s account

30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

70 000

75 000

Dec

06

Feb

07

Apr 0

7

June

07

Aug

07

Oct 0

7

Apr 0

8

June

08

Aug

08

Oct 0

8

Dec

07

Feb

08

Dec

08

05

10152025303540455055606570



(€bn)

(€m)






30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

70 000

75 000

Dec

06

Feb

07

Apr 0

7

June

07

Aug

07

Oct 0

7

Apr 0

8

June

08

Aug

08

Oct 0

8

Dec

07

Feb

08

Dec

08


Source: Agence France Trésor / DGFiP

The consolidated position of the State’s cash flows and those of the Treasury correspondents must

show a credit balance at the close of each business day. This requirement must be met at the close

of banking business each day and not during the day.

Usually, the structure of deposits by major entities changes little from one year to the next, which provides

the State with relatively stable financing. In this respect, 2008 was exceptional, with a very large and very

sudden decline in correspondents’ deposits in the course of the year.


05

10152025303540455055606570



(€bn)

(€m)






30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

70 000

75 000

Dec

06

Feb

07

Apr 0

7

June

07

Aug

07

Oct 0

7

Apr 0

8

June

08

Aug

08

Oct 0

8

Dec

07

Feb

08

Dec

08

33


This decline was particularly pronounced in the middle of the year, when deposit balances in

September 2008 stood at €13 billion less than in September 2007. There was a reduction in the

deposits by national public bodies, whose share of deposits shrank from 28% in 2007 to 19.5%

in 2008.

The trend had reversed in part by the end of the year, as central banks from the franc area increased

their deposits. It is noteworthy, however, that correspondents’ deposits declined by €1.6 billion

between December 2007, and December 2008, following years of steady growth5.

Structure of deposits by major categories of depositors

2006 2007 2008

Local authorities and local public bodies

53.67% 53.93% 54.22%

national public bodies and related accounts

28.31% 28.10% 19.52%

central banks in the franc area and other external entities 18.02% 17.97% 26.26%

Fine-tuning the cash balance depends directly on the accuracy of the information available to AFT

about transactions that are likely to be settled during the course of the day. Forecasts of cash flows

are used to arrange short-term borrowing, invest surplus cash for the best return and reduce the

precautionary balances set aside by AFT at the end of the year.

History has shown that every improvement in the information provided to AFT has resulted in

substantial improvement of cash management. This has been the case since the SAT Treasury

notification system was introduced in 1999 by the Public Accounting general Directorate, which

resulted in a large reduction in the State’s end-of-day balance on its single account at the Banque

de France, and the introduction of genuine active cash management. In 2004 and 2005, debit

notification systems were also established for the overseas banknote issuing institution (IEOM),

local authorities and local public bodies. At the same time, transactions for paying wages and

pensions overseas were transferred to metropolitan France and an advance notice system was

adopted for investment transactions and capital expenditure by the Central Bank of the West

African States (BCEAO). In 2008, AFT continued its efforts to improve forecasting of credits and

debits on the Treasury’s single account in order to ensure the neutrality of the contribution that

cash management makes to the State’s debt. For this purpose, Decree 2007-1393 of September

27, 2007 now requires national public bodies to notify AFT of any debit over €1 million, in the same

way as local authorities and local public bodies.

Even though the balance on the State’s account with the Banque de France must be in credit at the

close of business each day, compliance with this legal requirement must be reconciled with the

taxpayers’ financial interests. The cash left on deposit in the State’s single account with the Banque

de France bears interest at contractual rates that vary according to the amount deposited.

5/ Correspondents’ deposits had increased each year since 2003

new AccoUnT MAnAgeMenT sYsTeMThe Banque de France switched over to a new

account management application called eVcLi,

which centralises AFT debit notifications. This

development marks a further step in improving

the tools used to manage the state’s cash

position. once users have fully familiarised

themselves with the new application, it will

facilitate the monitoring of credit and debits,

making cash management more responsive. in

the near future, developments of eVcLi should

provide AFT with a technical enforcement

mechanism to back up the regulatory and

institutional notification requirements.

This mechanism will block the execution of

debits that have not been duly notified.

in 2007, AFT also built and implemented the

cash Management module of its siFT information

system, which enables it to ensure more security

for the day-to-day management of the account

and make better use of the information provided.


Revenues, expenditure and refinancing transactions on the Treasury account in 2008

State’s utilisation* of correspondents' deposits

(€m)

-25 000

-15 000

-5 000

5 000

15 000

25 000

35 000

45 000

Balance of debt (issuance minus redemptions and interest)Net revenues (revenues minus expenditures) Account balance

Jan 07 March 07 May 07 July 07 Sept 07 Nov 07 Jan 08 March 08 May 08 July 08 Sept 08 Nov 08

0%10%20%

30%40%

50%60%70%

80%90%

100%

January

February

March

2005 2006 2007 2008

AprilMay

JuneJuly

August

September

October

November

December


Up until the middle of 2007, these rates were usually lower than the interest earned on the State’s

market investments, for which the benchmark is EONIA (European Overnight Interbank Average).

In such a market, it is in the taxpayers’ interest to limit the balance on the single account with the

Banque de France as much as possible and to invest as much surplus cash as possible on the

interbank market by applying a State cash management strategy that is as close as possible to “zero

cash balance”. This must be kept in mind when considering the target of a cash balance at the Banque

de France of less than €100 million. Yet, the usual market conditions described occurred on only

5 days in 2008.

On the other hand, when market conditions mean that the interest paid by the Banque de France is

higher than that earned on interbank market investments, it is no longer in the taxpayers’ interest to

limit the balance on the account with the Banque de France to €100 million.

SEEKING BETTER FINANCING TERMSAFT seeks day-to-day financing on the best terms. The optimisation of financing requires proactive

management of the State’s cash flow. The cash flow is characterised by the mismatch between revenue

collection and expenditures over the year. Tax revenues, along with revenues and expenditure arising

from debt management, are clustered around a few key dates. The pattern of cash flows is increasingly

uneven as debt redemptions increase, following the increase in issuance volumes.

Source: Agence France Trésor* Portion of funds used to finance debits posted to the Treasury’s single account


Treasury Account Profile in 2008

Balance on account with the Banque de France

Unsecured deposits with primary dealers

Reverse repos

Others

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

(in €m )

JanFe

bMarch

AprilMay

JuneJuly

August

SeptOct

NovDec

35


Based on the cash flow pattern and notifications of cash transactions, AFT:

• Determines the necessary issuance amount of fixed-rate discount Treasury bills (BTFs);

• Determines the proportion of the cash deposited on the single account by Treasury correspondents

that the State will use;

• Invests temporary cash surpluses on the interbank market in the form of unsecured loans, repos of

government securities and loans to certain Treasuries in the euro zone (Belgium, Finland, Netherlands,

germany) with which it has cash exchange agreements. In 2008, AFT carried out 9,557 such

transactions on the interbank market with its banking partners. These transactions included unsecured

loans, repos and reverse repos, and loans to a number of Treasuries in the euro zone;

• Contracts unsecured loans or loans from Treasuries in the euro zone with which it has cash exchange

agreements.

TREASURY ACCOUNT PROFILE IN 2008The State adjusted its investment policy in a tense market during the last quarter of 2008.

The State responded to the drying up of the repo market in the last quarter of 2008 as banks

tried to hang onto government securities to improve the overall quality of their balance sheet

assets. Consequently, they no longer used these securities as collateral for loans that the State

usually grants in the form of repurchase agreements. Since government securities, which are

the only collateral that AFT accepts for repos, became rarer, it became more difficult to invest

the State’s surplus cash.

AFT responded to the situation by continuing to conduct its investment transactions in the form of

unsecured deposits with primary dealers. The volume of unsecured deposits increased significantly.

Yet, such deposits are more risky because of the lack of collateral, which means they can never

fully take the place of reverse repos. Consequently, more funds were deposited with the Banque

de France.

In 2008, proactive management of the State’s surplus cash generated gross revenues of

€736 million, which are to be deducted from the gross cost of the State’s debt.

The BAnQUe De FrAnce, The sTATe’s BAnKerThe Banque de France is the state’s banker. it performs this function under the terms of an account agreement. The present version of this agreement came into force on May 1, 2002. The agreement specifies the terms for the state’s real-time monitoring of movements totalling an average of €30.80 billion per day on its account, including revenues, expenditures, and refinancing and investment transactions.

The agreement is based on the principles of information, security and neutrality. The rules in place ensure that the state’s account balance does not decline after 4.15 p.m. due to the belated posting of urgent transactions. Furthermore, the Banque de France must compensate the state for the cost of any errors.

The Banque de France, the Public Finances general Directorate and Agence France Trésor review implementation of the account agreement on a monthly basis.

The agreement is updated periodically to adjust for changes in management and accounting rules stemming from amendments to interbank rules.



These revenues break down as follows:

• €685 million from investments on the interbank market;

• €12 million from cash loans to foreign Treasuries;

• €39 million in interest on the Treasury’s current account with the Banque de France.

The gross revenues from these investments in 2007 came to €666 million, which broke down as

follows:

• €652 million from unsecured lending on the interbank market or reverse repos;

• €7 million from loans to Treasuries in the euro zone;

• €8 million in interest on residual cash deposited with the Banque de France.

€m 2007 2008

Revenue from unsecured loans (primary dealers and BT Acoss) 31.4% 209.43 36.4% 267.70

Revenue from reverse repos with primary dealers 66.5% 442.95 56.6% 417.08

Revenue from loans to Treasuries in the euro zone 1.0% 6.60 1.7% 12.42

Interest on the current account with the Banque de France 1.1% 7.25 5.3% 39.25

Gross revenues from cash management 100% 666.23 100% 736.46

The increase in investment revenue in 2008 compared to 2007 stems primarily from the increase in

the balance on the Treasury’s account in the last quarter of 2008, resulting from :

1/ The adjustment of issuance in response to investor demand as the market grew tense in the fourth

quarter. Following the failure of Lehman Brothers, investors’ new and growing mistrust of banking

counterparties led them to reallocate their short-term cash holdings into risk-free assets, whereas

the attractive levels of the EURIBOR had previously encouraged them to lend generously to banks.

The demand for BTFs, including demand from new players, such as the corporate treasurers of

banks and other businesses, pushed BTF yields down to the level of EONIA -130bp on October 13. The

situation returned to normal by the end of October for maturities of one month or more. However,

the demand for very-short-term securities led AFT to concentrate on issuing the shortest dated secu-

rities and increase volumes. The increase in issuance raised the balance on the Treasury’s account.

2/ The need for preliminary financing at the end of 2008 for expenditures in early 2009 (see below).

The increased share of revenue from interest paid by the Banque de France is a direct consequence of

the greater number of days where interest rates were low and when it was in the taxpayers’ interest to

deposit more than €100 million with the Banque de France and of the larger amounts left on deposit with

the Banque de France in the last quarter of 2008.

PERFORMANCE MEASUREMENT AFT’s cash management performance is measured using three indicators presented to Parliament.

6/ The annual performance project for the Cost of Debt Service and the State’s Cash position for 2006 can be accessed at http://alize.finances.gouv.fr/budget/plf2006/bleus/pdf/DBGPGMPG M117.pdf It provides a detailed description of AFT’s management objectives and performance indicators.

Bank account debits and credits in 2008

(excluding debt and reserve transactions)

1 Local authorities and public bodies > 30.2%

2 Caisse des Dépôts et Consignations > 5.0%

3 Other national public bodies > 20.8%

4 La Poste > 0.1%

5 Central government > 43.9%

1

2

4

2

3

5

1

1

2


AFT’s market transactions in 2008

en 2008

1 Reverse repos > 56.12%

2 Unsecured deposits with primary dealers and Treasuries in the euro zone > 43.88%

1

2

4

2

3

5

1

1

2


37


OBJECTIVE 1 INVEST TEMPORARY STATE CASH SURPLUSES FOR THE BEST RETURNThe average return that AFT obtained on its cash investments was close to the management objectives.

The return was 1.6 basis points higher than the target for reverse repos and 0.8 basis points lower for

unsecured deposits.

The overall performance on the reverse repo market masks disparities over the course of the year.

Reverse repos earned very high returns in the third quarter, with rates that systematically beat the

EONIA swap rate between July 8 and September 18. This performance stems from the abundance

of government securities in the primary dealers’ books. Following the failure of Lehman Brothers,

the flight to quality led to strong demand for government securities, which were then unavailable for

repo transactions. The lower interest rates paid and the complete absence of any demand for repos

correspond to the drying up of collateral.

On the other hand, the return on unsecured investments was lower than the EONIA objective. As

a general rule, the EONIA fixing factors in transactions between banking counterparties at a rate that

reflects their risk profiles and the State does not have access to such transactions. global market turmoil

pushed the rates for these transactions up, thereby raising the EONIA fixing, but with no effect on the

rate on the State’s investments. Furthermore, the banks may have encountered liquidity problems, but

the timeframe was not the same as for unsecured State loans, which are granted overnight only.

2003 2004 2005 2006 2006 2007 2007 2008 2008

Actual Actual Actual Actual Objective Actual Objective Actual Objective

Unse-cured loans

Deposits

EONIA EONIA EONIA EONIA EONIA EONIA EONIA EONIA EONIA

+0.002% + 0.0011% + 0.0031% +0.0781% -0.0078%

Reverse repos(REpO)

SWAp EONIA

SWAp EONIA

SWAp EONIA

SWAp EONIA

SWAp EONIA

SWAp EONIA

SWAp EONIA

SWAp EONIA

SWAp EONIA

- 0.02% - 0.0112% - 0.0278% - 0.02% -0.027% -0.02% -0.004% -0.02%

OBJECTIVE 2 LIMITING THE END-OF-DAY CREDIT BALANCE ON THE STATE’S ACCOUNT WITH THE BANQUE DE FRANCE

According to the official calculation of the indicator, the average end-of-day balance on the account

stood at €85 million. For the third year in a row, the average end-of-day credit balance on the State’s

account with the Banque de France was below the target. However, the end-of-day balance indicator

does not include days when AFT decided to keep more than €100 million on the account because,

objectively, the alternative (investing the surplus on the market) was contrary to the State’s financial

interest. This decision is made on days where interbank market interest rates are lower than those

offered by the Banque de France (called low-rate days). .

Usually, there are only a few low-rate days in a year. Market conditions in 2008 changed dramatically and

only 5 days met the requirements for being used to calculate the indicator.

Consequently, the average balance on the State’s account with the Banque de France stood at

€1,479 million for the year.

6/ Balance excluding days on which the market rates are lower than the contractual rate on the account and excluding equalisation days for the overseas-department banknote issuing institution (IEDOM).


End-of-day balance on the Treasury's single account (€m)

5 0 04 5 5

1 1 3 1 1 2 1 0 5 9 6 9 2 8 5 1 0 0

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008Target2008


OBJECTIVE 3 ADVANCE NOTICE FROM TREASURY CORRESPONDENTS OF TRANSACTIONS POSTED TO THE STATE’S ACCOUNTThe advance notice requirement for local authorities led to the implementation of an indicator of the

percentage of financial transactions in excess of €1 million notified by 4.00 p.m. on the previous day.

The requirement was extended to national public bodies.

(€ m) 2003 2004 2005 2006 2007 2008 2008Target

percentage of local authority financial transactions in excess of €1 million posted to the Treasury’s account notified in advance

91% 91% 92% 92% 95% 93%* 95%

2010Target

percentage of national public body financial transactions in excess of €1 million posted tothe Treasury’s account notified in advance

87% 95%

Source: Agence France Trésor* not counting the first quarter of 2008

The local authority notification percentage rose steadily from the time the advance notice requirement

was introduced until 2007. It hit the 95% target for the first time in 2007.

The percentage in 2008 was slightly lower than in 2007. This temporary setback stems from the

changeover to the new EVCLI account management application at the Banque de France, which

involved a learning curve. The changeover to EVCLI changed the notification procedure within the

Treasury network and there was also a learning curve for the new procedures.


39


The notification percentage works out at 93%, but it covers only the last three quarters of 2008 in

order to give a better account of the Treasury accountants’ underlying behaviour patterns. The

notification percentage for the whole of 2008 stood at 74%.

The notification percentage is now weighted by the amounts notified to give a better account of the

impact of the notifications on the State’s cash position. For the sake of comparison, the unweighted

notification percentages stood at 93% for the last three quarters of 2008 and 72% for the year as a

whole.

In addition to the notification requirement for local authorities, Decree 2007-1393 of September 27, 2007

on the financial transactions of national public bodies posted to the Treasury’s account enshrines the

notification principle for this category of bodies. Transactions with a unit value of one million euros or

more that are debited from the Treasury’s current account with the Banque de France require prior

notice from the national public bodies.

This measure applies to national public bodies that are administrative, industrial or commercial

bodies subject to the provisions of Decree 62-1587 of December 29, 1962 on general government

accounting regulations.

The method used to calculate the indicator is the same as the one used for local authority transactions.

It was also proposed that the indicator should be weighted to reflect the real impact on cash

holdings, since the disparities between the volumes of different départements’ transactions are

very large, with 20 of them accounting for 97% of the amounts debited. The notification percentage

stood at 87%. The target of 95% was set for 2010 in order to allow for proper familiarisation with

the measure.

4040

RISK MANAGEMENT


41

RiGOROuS REAl-TiME MONiTORiNGOF TRANSACTIONS

The State is not a financial institution, but Agence France Trésor’s, business activities and risk profile

make it similar to a financial institution.

The French Banking and Financial Regulation Committee’s recommendations on risk management (set out in Regulation

CRBF 97-02, as amended) seem to be perfectly apt for AFT, once the necessary adaptations have been made. AFT

continuously monitors its transactions for compliance with laws and regulations, and for compliance with risk limits. It ensures

that transactions are properly executed and posted to the Treasury Account with the Banque de France, and that an accurate

and scrupulous audit trail is created.

THE SAME ORGANISATION AS FINANCIAL INSTITUTIONSIn keeping with banking practices, Agence France Trésor has made an administrative separation between its

“back-office” activities and risk control:

• Back-office activities include verifying and monitoring payments, validating and confirming transactions, making preliminary

accounting entries and settling disputes;

• Risk control establishes the framework for managing the various risks that AFT incurs.

AFT has a specific organisational structure and procedures for this purpose. It carries out second-level controls, ensures

compliance with limits and compiles reports on these matters for the Directorate general

Two levels of internal controlThe rules set by the French Banking Commission call for the AFT’s line units to set up internal control systems. These

rules call for functional separations between initiation, validation and auditing of transactions, and the creation of an

audit trail.

Risk management also requires oversight of the procedures for dealing with public and private-sector institutions and

bodies with regard to exchanges of information or settlement of transactions. The partners in question are the Banque de

France, primary dealers and the securities settlement systems. AFT is also in contact daily with the Ministerial Budget and

Accounting Control Unit, which keeps the accounting records of its transactions.

Risk management


Two external audit proceduresUnder the terms of Article 113 of the 2004 Supplementary Budget Act, a contractual auditor’s report

is appended to the Budget bill each year. KPMg carried out this audit in 2008. This audit focuses on

the financial statements and trading account, prudential procedures implemented within AFT and

at the Caisse de la Dette Publique, as well as transactions carried out under authorisations granted

in the Budget Act. AFT is also audited by the State Audit Office as part of the audit of the State’s

general account since 2006.

Risk management toolsAFT’s Internal procedural manual has been approved by the Head of the Treasury and Economic

Policy Directorate general, who is the Chairman of AFT. The manual sets out the standards for conducting

transactions, with specific details about the margin call mechanism for repos and derivatives that

enables the State to protect itself against the risk of default by its counterparties. The procedural

manual also has a chapter dealing with risk limits, risk monitoring procedures and the related reporting

requirements. AFT reviews its procedural manual periodically to ensure that it is consistent with

developments in its activities. It also submits the manual for comment by the audit firm conducting

the annual audit.

The specific nature of its activities means that AFT sets the code of practice that applies to everyone

working for the Treasury and the Economic Policy Directorate general. The code of practice is based

on those used in the financial sector. It stipulates special rules applying to anyone working within

AFT or on its behalf.

ACTIVITY IN 2008

Handling new transactionsAFT took over a loan to the Entreprise de Recherche et d’Activités Pétrolières (ERAP) and loans to the

Fonds de Financement des Prestations Sociales Agricoles (FFIPSA) in December 2008.

Implementation of an integrated transaction recording and accounting system

Much of 2008 was devoted to consolidating the back-office and accounting modules of the TRADIX

software. These functions have made it possible to manage all administrative and accounting tasks

relating to the State’s financial transactions on a single platform. The State now has a single uniform

tool that significantly enhances the security of transaction processing, from initiation to accounting,

with no need to re-enter transactions or conduct redundant controls.

It provides better separation of tasks (front-office, back-office, accounting, etc.) and maintains an

audit trail. It provides a two-way audit trail over the whole life cycle of AFT’s market transactions.

risK conTroL The state incurs five types of risk that may

affect its account balance:

> Market risk: The state incurs interest rate risk

in the event of variations that may affect all

of its balance sheet and off-balance sheet

transactions.

> counterparty risk: This is the risk that a coun-

terparty may default and be unable to honour

its financial obligations towards the state.

> Forecasting risk: Managing the Treasury

Account with the Banque de France requires

forecasts of transactions to be carried out

on the account over the next few days. such

forecasts rely on the information provided in

advance by the AFT’s correspondents. Failure

to comply with the advance notice require-

ment can lead to forecasting errors that are

detrimental for optimum cash management.

> settlement risk: This is the risk that a transaction

may not be settled because of a material

error or a failure in the payment system.

> operational and data processing risks:

These risks cover errors in the processing

of transactions because of a lack of an

official procedure, data loss resulting from

information system failures, disruptions of

telecommunications links, and computer

breakdowns.

43

Risk management

• Transactions can be traced from entries in the State’s accounts or AFT’s operating accounts right

back to the specific transactions conducted by AFT’s front-office staff.

• The audit trail also leads from the front-office staff’s entries to the payments made later, the event

reports produced and the accounting entries based on the event reports.

The new software can also handle a more diversified range of financial transactions than the old

system. TRADIX is the cornerstone for AFT’s new responsibilities under the 2006 Initial Budget Act,

which created a new trading account called “Management of the State’s Financial Risks”.

Adapting internal control to the new computer systemAFT finalised the review of its various business processes started in 2006 to derive the full benefits

of automation of the State’s financial transactions, with due consideration of the risks and constraints

of the new system. The purpose of the review is to examine the operational risks incurred in each

process, as defined in Article 4 of Banking and Financial Regulation Committee Regulation 97-02,

in order to define the controls used to manage such risks and any additional measures to be

implemented.

Ongoing updates of accounting standardsThe new financial transactions that AFT handles require ongoing adaptation of the accounting

framework used to record the transactions. This holds true for AFT’s own chart of accounts, based

on the banking chart of accounts, and the State’s chart of accounts. AFT worked in close collaboration

with the Public Finances general Directorate offices concerned to achieve a fair representation of the

characteristics and economic purpose of the transactions.

The Constitutional Bylaw of August 1, 2001 makes the State Audit Office responsible for certifying

the State’s accounts. The Office issued its first auditor’s opinion on the accounts in May 2007. For the

purposes of this exercise, an opening balance sheet for January 1, 2006 was drawn up. Missions were

conducted to assess internal control procedures. AFT was closely involved in the work concerning its

areas of responsibility.

AUDIT OBJECTIVES AND PERFORMANCE INDICATORSObjective: attain a constant standard of quality in risk management that minimises the number of incidentsRisk management must be up to market standards with regard to negotiable debt management and

cash management. The system should spot problems and incidents arising in debt and cash

transactions as soon as possible, avert them and measure their impact. This objective is determined

by the absolute requirement of having a credit balance on the account with the Banque de France.

It is also determined by the range of AFT’s transactions, which involve different settlement systems

and counterparties in other countries.

Two sets of indicators have been developed to assess whether this objective is achieved.

Pricewaterhousecoopers assisted AFT in this

task and with the elaboration of its summary

financial statements. The new management

accounting system and the new summary data

mean that comprehensive information about

the state’s debt and cash position is available

at all times. in turn, this reporting system will

help AFT keep pace with the best practices in

the market.

The success of this accounting reform depends

on the implementation of a new computer

system and the two projects were carried out

simultaneously. The deployment of these new

accounting standards in AFT’s information system

siFT (système d’information France Trésor)

was completed in 2007.


Quality indicators relating to AFT’s control system

The first sub-indicator lists the number of incidents or violations of internal procedures. These

procedures define the types of trades authorised, execution procedures, risk limits, powers of signature,

and controls to be implemented. This quantitative and qualitative indicator tracks various incidents,

which are classified in three categories: violations of powers of signature, violations of risk limits and

violations of execution procedures. This is an internal quality measurement relating to AFT’s organisation

and compliance with requirements.

No violations of procedures were reported in 2008.

The second sub-indicator tracks external ratings of the internal control system. External auditors

conduct an annual audit of AFT’s operations for this indicator. One of the auditors’ tasks is to verify

that AFT’s procedures are appropriate for its activities and the risks incurred. For this assessment,

the auditors refer to CRBF Regulation 97-02. Their assessment looks at the control system for

transactions and internal procedures, the accounting and reporting system, the system for measuring

risks and results, and the risk management and supervision system.

The external auditors’ report for 2008 upheld the rating awarded in 2007 and deemed that the procedures

ensured secure trading and financial reporting.

Indicators tracking execution incidents in debt and cash management transactions

Different types of incidents represent varying degrees of risk for AFT. They are classified into three

categories:

The first sub-indicator: tracks the number of incidents that have a negative impact on the balance

on the account at the Banque de France, for example, when a counterparty fails to honour its financial

commitments (10 in 2008 and 24 in 2007).

The improvement stems from measures implemented to ensure that margin calls are paid on time.

The second sub-indicator: tracks the number of incidents that have no impact or a positive impact on

the account balance. These incidents are less serious, but they are signs of problems nonetheless. For

example, AFT may find that its end-of-day balance is greater than expected, and thus be unable to invest

the funds or unable to obtain the best return (36 in 2008 and 19 in 2007).

The increase stems from the growing number of late payments in response to daily margin calls, which

are the counterpart to the improvement seen in the first sub-indicator. The number of security delivery

failures in repo transactions was down from 10 in 2007 to 7 in 2008. These incidents had no impact on

the interest income earned on the account, which was even improved in most cases. In 2006, when it

re-selected its primary dealers, AFT required each dealer to waive the professional confidentiality binding

Euroclear France and LCH-Clearnet so that its service quality could be monitored. AFT also added an

indicator for the quality of operational execution of transactions to the criteria that it uses to assess the

banks that are its partners.

>

>

45

Risk management

The third sub-indicator tracks the number of incidents relating to the systems involved in transactions,

including failures and problems with AFT’s internal information systems, problems with market

systems, such as the systems run by EUROCLEAR, or problems with the computer system at the

Banque de France (8 in 2008 and 10 in 2007).

The system-related incidents stem primarily from problems with connections to the Banque de France

applications, market systems (EUROCLEAR) and AFT’s internal applications.

The objective set for prudential supervision has thus resulted in a decrease in the number of incidents.

AFT’s business continuity plan (BCP)In compliance with the Banking Commission’s recommendations, set out in Banking and Financial

Regulation Committee Regulation 2004-02, AFT drew up a business continuity plan (BCP) with three

levels: local, regional and international. The project was carried out in partnership with the Public

Finances Directorate general.

The features of the regional disaster recovery plan include:

• A close partnership with the Public Finances Directorate General, since:

- The solution will be hosted by the Directorate general, which took an active part in its construction,

- A comprehensive service package (methodology, operation) provided by the Directorate general.

• A technical part hosted by the Directorate General’s national security site, dedicated to disaster

recovery.

• A back-up user site for AFT hosted by the Public Finances Directorate General that meets the

requirements in terms of distance from Paris and AFT, but also meets the need for easy access.


SIFT - AFT’S INFORMATION SYSTEM

47

SIFT - AFT’S information system

SIFT, AFT’s information system underwent several major advances in 2008. The preliminary stages

of the recasting of the information system date back to a system audit in 2001. The project should be completed in 2009,

which means that that the project per se will have lasted for six years.

The SIFT system built by AFT provides secure, cross-sector, user-friendly and open-ended management of the State’s market

transactions (issuance, proactive debt management, investment of cash holdings), and automatic recording of AFT’s transactions

in the State’s accounting system. SIFT also tracks the State’s account with the Banque de France, providing cash position

forecasts, real-time monitoring of account transactions and investment decision-making aids.

Agence France Trésor’s information system has been completely recast in a process that started in 2002 with several major

objectives, including meeting AFT’s operational needs, providing integrated management to unify information sources and

prevent re-entering of data. The information system is made up of three interconnected applications :

• The SIFT-Trading module tracks AFT’s market transactions from the initial trade to posting in the State’s accounts,

• The SIFT-Cash Management module manages the State’s cash position, except for investment transactions and BTF

issuance, which are handled by the SIFT-Trading module.

• The SIFT data centre module compiles all internal and external data for historical purposes and for forecasting.

A S y S T E M T O C O P E w i T h NON-STANDARD TRANSACTION VOLUMES


MAIN TECHNICAL SPECIFICATIONS• Financial software used: TRADIX from SUNgARD, including the Extended Cash Management module

and the Extended Credit Risk module.

• Database: SYBASE.

• Operating system: MS-WINDOWS.

• Data centre query: BUSINESS OBJECTS.

• ETL tool: ORACLE-SUNOPSIS.

• File transfer monitoring: CFT.

• Internal development: JAVA, PERL, JAVASCRIPT, PHP, XML, VISUAL BASIC.

The recasting project entered its final phase in 2008, with the industrial exploitation of the SIFT-Cash

Management module relying on EVCLI, the new account management system at the Banque de

France.

The non-standard volume of transactions (averaging 70,000 to 100,000 transactions each day on

the Treasury’s single account with the Banque de France) imposes major technical and functional

constraints for the integration and processing of files sent by the Banque de France, particularly for

comparisons between forecasts, notifications and outturns.

Work on the interface between the SIFT Trading and SIFT Cash Management modules started in 2008

and the interface should be fully operational in 2009. It will provide an accurate transcription of forecasts

and notifications of financial transactions stemming from the AFT’s market activity to the Treasury’s

single account. The interface between the SIFT Trading and SIFT Cash Management modules tracks the

impact of lending and borrowing transactions, repos, issuance and redemption of government securities,

interest-rate swaps and margin calls on the Treasury’s single account with the Banque de France.

The interface created between the TRADIX Trading and Cash Management modules is part of

straight-through processing chain and reinforces the unity, supervision and audit trail of transactions

from the trade initiated by the front office to risk control and collateralisation by the middle office and

the settlement of the transaction by the back office, as well as transaction recording by the Accounting

module and gauging the impact on the State’s cash position in the Extended Cash Management

module.

This application module is now being finalised and should soon provide cash managers with an

integrated and fully operational tool that provides greater granularity than the previous system. This

will enable AFT to comply with the State Audit Office’s recommendations with regard to improving

forecasts.

49

SIFT - AFT’S information system

In the same vein, AFT is currently setting up an extranet for its partners required to enter notifications

and forecasts, including the Public Finances Directorate general, national public bodies, the Budget

Directorate and the French government Shareholding Agency (Agence des Participations de

l’Etat - APE). Setting up the extranet will achieve the three following objectives:

• more uniform means for collecting debit notifications by the cash management unit,

• more diverse references for forecasts,

• a broader audience for forecasts and/or debit notifications.

Testing of the Agence France Trésor extranet will start in early 2009 with some pilot bodies, including

the Agence des Participations de l’Etat and the Ministerial Accounts Department of the Ministry of

Finance, before it is deployed for all of AFT’s partners later in 2009.

AFT is setting up a data centre dedicated to the SIFT Cash Management module. This data

warehouse will use Sybase IQ to retrieve data and produce historical accounts or forecasts, making

it a decision-making aid for the cash position managers.

This means that the State’s cash position can be managed using a more refined capture and the

most accurate forecasts possible of transactions to be posted to the Treasury’s single account with

the Banque de France. This is a major requirement for the financial authorities, political leaders and

citizens. Professional and sound management of the State’s market and cash transactions is now

able to rely on an optimised and open-ended information system that can meet new needs and ensure

full performance of Agence France Trésor’s duties.


FINANCIAL REVIEW

51

Financial Review

GENERAL PRESENTATION PRINCIPLESThe accounting principles applied are consistent with the banking chart of accounts (PCEC) and Banking and Financial

Regulation Committee Regulations 90-15 on interest rate and currency swaps, 88-02 on forward financial instruments

and 89-01 on foreign currency transactions. This choice means that the principles applied include the prudence,

going-concern, consistency and accrual principles. More specifically, it means that financial debts are carried at their

historical cost (nominalistic principle) and that derivatives are recognised according to the intent for holding them

(recognition by intention principle).

ACCOUNTING PRINCIPLES1/ Consistency principle

The presentation of the statements and the measurement methods must not be changed from one year to the next, unless

an exceptional change occurs in the transactions handled by Agence France Trésor that requires a new method to be

applied to provide better information.

Any change in methods must be explained and mentioned in the notes to the summary statements produced by Agence

France Trésor. The notes should include a presentation of income recognised using both methods (before and after) and an

explanation of the differences in the figures.

2/ Prudence principleThe prudence principle states that events should be assessed in a reasonable manner so as to avoid the risk of transferring

present uncertainty about assets and liabilities, or income from the transactions that AFT handles on behalf of the State to

future years.

More specifically, the prudence principle requires:

• Recognition of provisions and amortisation, even when no income is recognised;

• Recognition of all of the foreseeable risks and potential losses arising in the course of the current year or a previous year,

even if such risks or losses are only learned of between the cut-off data and the date on which the balance sheet is drawn

up;

• Recognition of realised profits only;

• Recognition of a provision when the inventory value of an asset is lower than its net book value;

• No recognition of a capital gain when the inventory value of an asset is greater than its historical value.

FiNANCiAl STATEMENTSPRESENTED ACCORDINGTO MARKET PRACTICES


3/ Classification according to intentBanking regulations introduced a specific principle for recognising trading and securities transactions

on the basis of intent. This means that trading and securities transactions are categorised according

to the intent with which the securities are held (e.g. trading or hedging). The accounting methods

used to record and measure the transactions and the resulting income are determined by this

intent.

4/ Accrual principleThe accrual principle means that all of the revenue and expense attaching to an accounting period

must be recognised in that period.

Consequently, Agence France Trésor defers or accrues some revenues and expenses so that the

amounts recognised are those attaching to the reporting period only (e.g. recognition of accrued

interest).

5/ No offset principleAccording to this principle:

• Assets and liabilities are measured separately;

• No offsetting is allowed between balance sheet items, between off-balance sheet items, or

between expense and revenue items in the income statement.

6/ True and fair view principleThe true and fair view principle states that financial information must be adequate about all material

points and thus provide readers of the AFT financial statements with satisfactory information.

RECOGNITION AND MEASUREMENT PROCEDURES1/ Claims and debtsThe State’s financial debts may only be recognised:

• If they are authorised by the Budget Act,

• If they constitute a definite debt,

• If they can be measured reliably.

Issues of OATs, BTANs and BTFs (the latter are sold at a discount) are recognised at their par value.

The inflation-linking differential at the time of issue is recognised as either a gain corresponding to

the portion of the inflation-linking supplement collected by the State, or as a loss corresponding to

the proportion of the inflation-linking supplement paid by the State. This differential is recorded as a

separate debt item.

Buybacks of OATs and BTANs result in the removal of the securities from the balance sheet at their

par value or their inflation-linked value, as appropriate.

Claims arising from repurchase agreements involving government securities are recognised for the

amount paid, which represents the State’s claim on the seller.

53

Financial Review

Claims arising from deposits on the interbank market and deposits with governments in the euro

zone are recognised for the nominal amount deposited.

Liabilities arising from deposits of Treasury correspondents and other authorised entities are recognised

for the amounts deposited. Liabilities arising from borrowing on the interbank market and borrowing from

governments in the euro zone are recognised for the nominal amount deposited.

Liabilities arising from lines of credit shall be recognised for the proportion of the authorised amounts

actually drawn. Any drawing on a line of credit will have an impact on off-balance sheet items.

Claims and debts arising from margin calls associated with repurchase agreements involving go-

vernment securities shall be recognised for the amount of the variation in the value of the securities

received as collateral up the preset threshold.

Debts arising from margin calls associated with derivatives contracts shall be recognised for the amount

of the variation in the value of the contracts up to the preset threshold.

2/ Expenses and incomeExpenses and income arising from financial debts, other claims and other debts shall be recognised

as of the date the commitment is made.

Interest expense and income arising from cash assets and liabilities shall be recorded at the maturity

date of the transaction under consideration.

Interest expense on fixed-income securities shall be recognised on the coupon payment date

(anniversary date).

The interest expense arising from the inflation-linking of the principal of OATi and OAT€i bonds shall

be recognised on the coupon payment date, as it is under the cash-based accounting system, under

the terms of Article 125 of the 2000 Budget Act.

3/ Rediscounting proceduresOn the last day of each accounting period, the accrued interest expense and income shall be computed

on a prorated basis between the last payment date and the end of the accounting period. Except in

special cases (e.g. bonds with a single coupon) the accounting entries related to rediscounting shall

be reversed on the day following the end of the accounting period.

Rediscounting transactions shall be computed on a monthly basis.


Rediscounting computations:

• Cash-management transactions (repurchase agreements, margin calls, loans, credit lines):

360 days

• Interest-rate swaps and margin calls on derivatives:

- Rediscounted interest: 30/360 for the fixed-interest leg

- Rediscounted interest: exact number of days over 360 for the variable-rate leg

• Government securities (OATs, BTANs and BTFs): 365 days (366 days for leap years)

• Amortisation of premiums and discounts on OATs and BTANs: 365 days (366 days for leap years).

Comparison of accounting information under the State’s chart of accounts and the banking chart of accounts

All of Agence France Trésor’s transactions shall be recorded using both the State’s chart of account

(PCE) and the banking chart of account (PCEC).

The table below shows the information provided under the two charts of accounts.

state’s chart of accounts Banking chart of accounts

Fixed-rate OATs 528,401,916,927.46 OATs 664,979,527,979.00

Variable-rate OATs 136,594,487,078.00 Single-coupon OATs 32,379,679.91

Capitalised interest on OATs 15,503,653.45 Index-linking differential on OATs 15,549,564,656.00

Index-linking differential on OATs 15,549,564,656.00

Total OATs 680,561,472,314.91 Total OATs 680,561,472,314.91

Fixed-rate Treasury notes

with annual coupons (BTANs)

187,683,000,000.00Fixed-rate Treasury

notes with annual

coupons (BTANs)

197,008,000,000.00Variable-rate Treasury notes

with annual coupons (BTANs)

9,325,000,000.00

Index-linking differential on

BTANs

794,676,500.00 Index-linking differential

on BTANs

794,676,500.00

Total BTANs 197,802,676,500.00 Total BTANs 197,802,676,500.00

Discount Treasury bills

(BTFs)

138,281,000,000.00 Discount Treasury

bills (BTFs)

138,281,000,000.00

55

Financial Review

BALANCE SHEET€ million

AsseTs at December 31, 2008 at December 31, 2007

Treasury’s current account with the Banque de France (Note 8) 23,526.09

Loans to credit institutions Short-term loans to credit institutions 23,610.00 8,850.00 Claims related to loans to credit institutions 16.19 0.88

Securities received under repurchase agreementsSecurities received under repurchase agreements 3,275.66 4,802.13 Claims related to securities received under repurchase agreements 1.88 1.29

Investment securities (Note 13) 10,000.00 8,000.00

Other assets (Note 1)Collateral provided for repurchase agreements 43.43 - Claims related to collateral provided for repurchase agreements 0.01 -

Accruals and deferred incomeExpenses to be amortised – BTAN discounts (Note 2) 798.23 781.16 Expenses to be amortised – OAT discounts (Note 2) 10,426.61 8,823.20 Expenses to be amortised – OAT issuance costs 77.77 75.18 Prepaid expenses – interest on BTFs 1,145.87 925.58 Deferred income – macro-hedging swaps – interest to be received 492.53 655.03 Deferred income – micro-hedging swaps – interest to be received 23.74 23.63 Deferred income – currency swaps – interest to be received 15.01 19.19 Deferred income – currency swaps – interest on investment securities 4.10 - Deferred income – interest on the current account with the Banque de France - 1.42

LiABiLiTies at December 31, 2008 at December 31, 2007

Treasury’s current account with the Banque de France (Note 8) 15,162.41

Negotiable debt securities

Negotiable debt securities – BTFs 138,281.00 78,456.00

Negotiable debt securities – BTANsDebt securities - BTANs 197,008.00 201,187.50 Debt securities – BTANs – index-linking supplement (Note 3) 794.68 380.37 Debts related to BTANs 285.38 165.22

Negotiable debt securities – OATsDebt securities - single-coupon OATs 32.38 30.03 Debt securities – OATs – index-linking supplement (Note 3) 15,549.56 10,832.17 Debt securities - OATs 664,979.53 629,837.55 Debts related to OATs 272.11 99.24

Debts assumed for third parties (Note 10)SNCF loans assumed 5,871.50 7,861.57 ERAP loans assumed 2,400.00 - CDF loans assumed 2,104.90 - EMC loans assumed 346.35 361.97 Debts related to loans assumed 242.44 203.80

Other liabilities (Note 1)Collateral received for repurchase agreements - 0.11 Collateral received for derivatives 967.08 533.51 Debts related to collateral received for derivatives 2.00 1.55

Accruals and deferred expensesPrepaid income - premiums on BTAN issues (Note 2) 388.43 144.15 Prepaid income - premiums on OAT issues (Note 2) 8,060.89 8,645.68 Prepaid income – discounts on investment securities - 6.60 Interest expense on OATs 12,215.47 12,212.83 Interest expense on BTANs 4,129.17 4,265.65 Payables – macro-hedging swaps – interest payable 375.45 519.23 Payables – micro-hedging swaps – interest payable 13.12 13.43 Payables – currency swaps – interest payable 12.33 13.31 Deferred expenses arising from the revaluation of currency swaps (Note 12)

166.62 151.56


at December 31, 2008 at December 31, 2007

Interest-rate swaps for macro-hedging (note 5) 28,362.00 41,562.00

Interest-rate swaps for micro-hedging (Note 10) 1,933.29 1,933.29

Commitments received from credit institutions (Note 6) 400.00 400.00

Currency swaps (Note 10) 1,571.59 1,732.84

Interest-rate options – hedging transactions (Note 10) - 549.88

Commitments given under repurchase transactions (Note 11) 2,500.00 -

Commitments received on issuance of securities (Note 14) - 6,004.00

€ million

€ million

Off-balance sheet

Income Statement

at December 31, 2008 at December 31, 2007

Interest income from cash transactions (A) 760.65 658.45Interest on the current account with the Banque de France (Note 7) 36.85 8.11Interest on loans to credit institutions 278.31 192.59Interest on loans to euro-zone governments 12.42 6.60Interest on margin calls 1.26 0.63Interest on repurchase agreements 416.42 443.49Interest on investment securities (Note 13) 15.39 7.02

Interest expense from cash transactions (B) -2.55 -1.87Interest expense on borrowing from credit institutions -0.62 -0.64Interest expense on borrowing from euro-zone governments -0.90 -Interest expense on repurchase agreements -0.10 -0,17Interest expense on margin calls -0.94 -1.06

Net income from cash transactions C = A - B 758.10 656.58Interest expense on negotiable debt -39,120.46 -37,553.96

Interest expense on OATs -28,436.79 -27,939.71Interest expense on BTANs -6,507.65 -6,455.57Interest expense on BTFs -4 ,176.02 -3,158.68

Total other expenses and income related to negotiable debt -4,785.21 -2,666.52Premiums on securities issues (Note 2) 1,109.40 1,197.93Discounts on securities issues (Note 2) -1,417.33 -1,182.46Expenses related to the index-linking differential (Note 3) -4,094.41 -2,705.31Net income from securities buybacks -372.77 32.89Total other expenses and income directly related to the manage-ment of negotiable debt (Note 9)

-10.10 -9.56

Total negotiable debt service (D) -43,905.67 -40,220.48Interest income on financial instruments 1,749.90 1,909.22Interest expense on financial instruments -1,591.30 -1,609.55Other interest expense on financial instruments -22.18 -29.09

Net income on financial instruments (E) 136.42 270.58Interest expense on EMC loans assumed -18.32 -17.24Interest income on EMC financial instruments assumed 12.72 12.37Interest expense on EMC financial instruments assumed -11.70 -11.55Interest expense on SNCF loans assumed -360.46 -Interest income on SNCF financial instruments assumed 126.32 -Interest expense on SNCF financial instruments assumed -154.33 -Interest expense on CDF loans assumed -113.97 -Interest expense on FFIPSA loans assumed -12.08 -Interest expense on ERAP loans assumed -0.74 -Expenses related to the revaluation of contracts in foreign currencies (Note 12) -182.63 -1.55Income related to the revaluation of contracts in foreign currencies (Note 12) 182.62 1.55

Net income on loans assumed for third parties (F) (Note 10) -532.56 -16.42

NET DEBT EXPENSE (C+D+E+F) -43,543.71 -39,309.74

57

Financial Review

NOTESNote 1: Other assets and liabilitiesOther assets and liabilities correspond to collateral received or given to secure transactions. The

purpose of this collateral is to limit counterparty risk.

A margin call is paid or received, depending on changes in the value of the instrument.

Such margin calls bear interest.

Note 2: Premiums and discounts on OATs and BTANsThe notion of premium or discount is defined hereafter from the point of view of the issuer, meaning

Agence France Trésor.

A discount means that the settlement value is lower than the par value of the issue, plus accrued

interest and any supplementary principal due in the case of inflation-linked OATs. This discount is an

expense to be amortised over the life of the debt.

Conversely, a premium means that the settlement value is higher than the par value of the issue,

plus accrued interest and any supplementary principal due in the case of inflation-linked OATs. Such

premiums are recorded as prepaid income and are amortised over the life of the debt.

The tables below show the amortisation of premiums and discounts using the yield-to-maturity

method.

Residual amortisation in 2008

Liabilities 12-31-2007 Issue premiums Amortisation of premiums 12-31-2008

On fixed-rate OATs 5,826,524,355.77 338,924,171.93 752,621,191.18 5,412,827,336.52

On variable-rate OATs 2,819,155,562.32 103,987,132.00 275,083,760.08 2,648,058,934.24

On fixed-rate BTANs 144,154,004.15 321,271,700.00 80,155,433.53 385,270,270.62

On variable-rate BTANs 4,690,827.00 1,535,085.14 3,155,741.86

Assets

On fixed-rate OATs 7,480,253,009.44 2,214,229,400.00 839,805,476.68 8,854,676,932.76

On variable-rate OATs 1,342,944,897.00 418,220,464.00 189,229,043.49 1,571,936,317.51

On fixed-rate BTANs 717,834,758.02 401,742,850.00 362,312,965.38 757,264,642.64

On variable-rate BTANs 63,329,637.72 3,610,944.00 25,978,822.08 40,961,759.64

Dis

cou

nts

Pre

miu

ms


The yield-to-maturity premium and discount amortisation method for each issue at December 31,

2008 is the difference between the ex-coupon price at issue and the theoretical ex-coupon price of

the same issue, as valued at December 31, 2008 using the yield-to-maturity at the time of issue.

Premium and discount amortisation is calculated using this method for fixed-rate securities, index-

linked securities and variable-rate securities.

The method used for index-linked securities applies a constant inflation-index coefficient at the time

of issue when calculating the yield to maturity and the amortisation.

The index value at the time of issue for variable-rate securities (OAT TEC 10 01/25/2009) is crystal-

lised when calculating the yield to maturity and the amortisation.

Extraordinary premium and discount amortisation is recognised for securities buybacks using the

first-in-first-out method.

Yield-to-maturity amortisation of premiums and discountsat December 31, 2008

Issue premiumsor discounts

Cumulativeamortisation

Residualamortisation

Fixed-rate OATs 8,356,421,186.59 2,943,593,850.07 5,412,827,336.52

Variable-rate OATs 3,872,501,394.62 1,224,442,460.38 2,648,058,934.24

BTANs 622,588,700.00 237,318,429.38 385,270,270.62

Variable-rate BTANs 4,690,827.00 1,535,085.14 3,155,741.86

Fixed-rate OATs 13,328,454,768.86 4,473,777,836.10 8,854,676,932.76

Variable-rate OATs 2,241,423,030.77 669,486,713.26 1,571,936,317.51

Fixed-rate BTANs 1,389,555,240.00 632,290,597.36 757,264,642.64

Variable-rate BTANs 86,768,888.00 45,807,128.36 40,961,759.64

Dis

cou

nts

Pre

miu

ms

59

Financial Review

Note 3: Inflation-index supplements for OATi, BTAN$i and OAT$iIssues of securities linked to the consumer price index (OATi, BTAN€i and OAT€i) are recorded at

their par index-linked price. Redemption at par is guaranteed at maturity and the principal adjustment

for inflation is payable at maturity.

The index-linking differentials calculated over the term of the securities are recognised as financial

expenses if the index rises or financial income if the index falls.

Note 4: OAT issuance costsIssuance costs include such expenses as commissions paid to various intermediary entities that

place Treasury securities, or syndication commissions in the case of issuance by syndication,

advertising expenses, printing expenses, expenses for public notices and fees. These costs are

amortised over the life of the debt.

Note 5: Interest rate swaps for macro-hedgingAccording to Article 2 of Regulation 90-15 of December 18, 1990, interest-rate swaps and cur-

rency swaps shall be classified in one of the four categories below if their purpose is:

• “a) to maintain isolated open positions in order to benefit, if possible, from movements in interest

rates”;

• “b) to hedge, in a predetermined manner, the interest-rate risk affecting an item or a group of

homogeneous items”;

• “c) to hedge and manage the institution’s overall interest rate expose on assets and liabilities

and off-balance sheet items, excluding the transactions referred to in b) or d). Such hedging

may only be applied if the institution measures its overall interest-rate exposure […] and if

the executive body […] has made a specific prior decision concerning overall interest-rate risk

management. Moreover, the institution must be able to prove that the swaps recorded in

this category actually reduce its overall interest-rate risk.”

• “d) to permit specialised management of a trading portfolio comprising: specific interest-rate or

currency swaps, other interest-rate futures, securities or equivalent financial transactions.“


Interest-rate or currency swaps included in this portfolio may only be earmarked for such manage-

ment if the following five conditions are met:

• The institution is able to maintain an uninterrupted, long-term presence on the interest-rate or

currency swap market;

• A significant number of transactions are made in the swap trading portfolio;

• The portfolio is constantly managed on an overall basis, for example as regards risk exposure;

• Positions are centralised and results are computed daily;

• Internal limits for interest-rate risks arising on the portfolio have been established in advance […]”.

The Regulation stipulates that “Swaps that do not meet the conditions referred to in b), c) and d)

above shall be recorded in category a)”.

A strategy to reduce the average maturity of the State’s financial debt that diminishes the average

interest expense in the long run, all else being equal, with a corresponding increase in the average

short-term variability of interest expense is deemed to be a strategy aimed at hedging and managing

the overall interest-rate risk on the debt that meets the conditions stipulated in c) of the Regulation,

particularly since:

• The Minister for the Economy, Finance and Industry has made a decision with regard to the overall

management of interest-rate risk;

• The reduction of the average maturity of debt corresponds to a reduction of its duration and, thus,

a reduction of its sensitivity to interest-rate risk;

• The effectiveness of the hedging policy has been demonstrated.

In accordance with the principles set out above, all of the swaps recorded as off-balance sheet items

are classified in category c) of the Regulation and deemed to be macro-hedging swaps.

Note 6: Commitments received from credit institutionsThis item corresponds to the various lines of credit that Agence France Trésor has contracted to

ensure that the State’s account with the Banque de France shows a credit balance at the end of

the day. AFT opened several other lines of credit with various credit institutions qualified as primary

dealers in 2006. The financing commitment made by each relevant institution consists of offering a

lending rate to AFT, subject to a cap corresponding to the terms of the drawing (date and time). The

cap ranges between €0.2 billion and €9.5 billion for loans paid on the negotiation date, and between

€0.5 billion and €11.5 billion for loans paid on the day after the negotiation date. It should be noted

that no drawings were made in 2008.

Note 7: Interest on the current account with the Banque de FranceThe State holds a single account with the Banque de France, which is broken down into different

operating accounts. The Banque de France pays the State interest on the daily balance of the

“consolidated” current account.

61

Financial Review

Note 8: The Treasury’s current account with the Banque de FranceAt December 31, 2008, this item corresponds to the balance of all the bank debits and credits

made for the purposes of the transactions managed by AFT. This must not be confused with the

balance on the Treasury’s single account, which tracks all of the State’s financial flows. Conse-

quently, this account cannot be analysed for the purpose of drawing conclusions about changes

in public finances.

Note 9: Expenses and commissions directly related to the mana-gement of negotiable debtThis item corresponds to expenses and commissions directly related to debt management, such as the charges invoiced by EUROCLEAR-France and the Banque de France, syndication commis-sions and certain communication expenses.

Note 10: Debts assumed for third partiesDebts assumed for third parties correspond to:

• A set of loans and forward financial instruments assumed for Entreprise minière et chimique

(EMC). As of December 31, 2008, the EMC debts assumed consisted of bonds hedged by

micro-hedging swaps (€200 million), loans (€146.35 million) and a currency swap (€39.64

million).

Foreign currency debts assumed for EMC

Currency swaps assumed for EMC

• A set of borrowings and forward financial instruments assumed for the French railways (SNCF). At

December 31, 2008, the debts assumed for the French railways consisted of euro-denominated

loans (€4,516.87 million) hedged by micro-hedging swaps (€1,733.28 million), foreign-currency

loans (€1,354.63 million) and currency swaps (€1,354.63 million).

Debts assumed for the French railways by currency

Nominal amount in yen Countervalue at maturity Countervalue at 12/31/2008

Yen loan JPY 5,000,000,000 EUR 46,692,970.37 EUR 39,638,496.91

Nominal amount in yen Nominal amount in euros Countervalue at 12/31/2008

Yen swap JPY 5,000,000,000 EUR 46,692,970.37 EUR 39,638,496.91

Nominal amount in foreign currency

Nominal amount in euros

Countervalue at 12/31/2008

Loans in CAD CAD 300,000,000 EUR 187,034,562.86 EUR 176,491,351.92

Loans in CHF CHF 600,000,000 EUR 388,727,082.50 EUR 404,040,404.04

Loans in GBP gBP 200,000,000 EUR 299,616,264.00 EUR 209,973,753.28

Loans in HKD HKD 272,000,000 EUR 32,937,855.00 EUR 25,218,342.64

Loans in USD USD 750,000,000 EUR 616,579,272.71 EUR 538,909,247.69


Currency swaps assumed for the French railways by currency

• Bond debt in euros assumed for Charbonnages de France stood at €2,104.90 million at

12/31/2008.

• A loan in euros assumed for Entreprise de recherches et d’activités pétrolières of €2,400 million.

Note 11: Commitments given under repurchase transactionsThis item corresponds to repurchase agreements that AFT entered into before December 31, where

the value date falls after the end of the year.

Note 12: Foreign exchange losses and gains on the revaluation of finan-cial transactionsIn accordance with banking accounting rules (Regulation 89-01), foreign currency transactions

were revalued at the end of the year. This revaluation resulted in recognition of:

• A potential foreign exchange loss of €9.32 million on the EMC debts assumed and a potential

gain of the same amount on the hedging instruments.

• A potential foreign exchange loss of €72.39 million and a potential foreign exchange gain of

€93.88 million on French railways foreign currency loans assumed. A potential gain and a po-

tential loss of the same amounts were recognised on the hedging instruments.

These amounts correspond to the difference between the repayment value of the loans when

they are assumed converted into euros at the forward exchange rate set out in the original

contract and the same amount converted into euros at the closing spot rate at the end of the ac-

counting period. For the following accounting periods, the amounts correspond to the difference

between the value converted at the spot rate at the end of the period and the spot rate at the

end of the previous period.

There is no net impact on the income statement.

Note 13: Investment securitiesThese securities consist of commercial paper purchased from ACOSS at the end of December in

2007 and in 2008.

Note 14: Commitments received on issuance of securities This item corresponds to the nominal amount of the two BTF auctions under way at December 31, 2007.

Nominal amount in foreign currency

Nominal amount in euros

Countervalue at 12/31/2008

Currency swaps in CAD CAD 300,000,000 EUR 187,034,562.86 EUR 176,491,351.92

Currency swaps in CHF CHF 600,000,000 EUR 388,727,082.50 EUR 404,040,404.04

Currency swaps in GBP gBP 200,000,000 EUR 299,616,264.00 EUR 209,973,753.28

Currency swaps in HKD HKD 272,000,000 EUR 32,937,855.00 EUR 25,218,342.64

Currency swaps in USD USD 750,000,000 616 579 272,71 EUR EUR 538,909,247.69

Financial Review

63

Non-resident holdings of negotiable French government debt securities

Source: Balance of payments

444648505254565860626466

12/2

004

03/2

005

06/2

005

09/2

005

12/2

005

03/2

006

06/2

006

09/2

006

12/2

006

03/2

007

06/2

007

09/2

007

12/2

007

03/2

008

06/2

008

09/2

008

12/2

008

as a % of negotiable debt outstanding

Negotiable debt outstanding • €1,016.6 bn at the end of 2008 (+€95.9 bn vs. end of 2007)

of which €16.3bn in commitments related to the index-linked principal of index-linked OATs

• €680.6 bn OATs

• €197.8 bn BTANs

• €138.3 bn BTFs

Non-resident holdings• €65.6% in December 2008

(68.3% for BTFs, 58.8% for OATs and 88.3% for BTANs)

Renewal• €12.0% for medium- and long-term debt (OATs and BTANs)

(€99.9 bn redeemed or repurchased / €831 bn outstanding par value at the start

of the year)

Apparent average interest rates• 4.62% for fixed-rate OATs at end of 2008 (4.85% end of 2007)

• 3.13% for BTANs at end of 2008 (3.36% end of 2007)

Negotiable government debt

Outstandings, non-resident holdings and average maturity

Year-end results 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Variation 2008/2007

Outstandings (€ million)Total government debt 514,820 560,162 583,045 616,259 653,286 717,192 787,741 832,859 877,350 876,590 920,724 1,016,645 95,921

Long-term debt (OATs) 330,779 363,444 395,087 419,119 442,472 477,788 511,530 551,955 593,197 609,915 640,700 680,561 + 39,861

of which OATi & OAT€i (1) — 4,340 9,937 12,827 19,431 29,502 46,589 71,089 90,352 105,530 131,848 152,411 + 20,563

Medium-term debt (BTANs) 142,807 149,524 154,270 154,126 158,374 151,227 167,514 183,832 188,830 200,429 201,568 197,803 - 3,765

Short-term debt (BTFs) 41,234 47,194 33,688 43,014 52,440 88,177 108,697 97,072 95,323 66,247 78,456 138,281 + 59,825

Non-resident holdings as a % Total government debt 20.0% 22.6% 28.0% 33.7% 38.4% 41.9% 48.0% 52.7% 56,5% 58,9% 60.0% 65.6% + 5.6pt

Long-term debt (OATs) 12.4% 15.0% 17.7% 25.2% 30.2% 34.2% 39.7% 45.1% 49.7% 53.2% 54.6% 58.8% + 4.2pt

Medium-term debt (BTANs) 30.3% 36.8% 46.9% 50.7% 55.2% 63.1% 69.9% 71.8% 72.7% 73.6% 75.4% 88.3% + 12.9pt

Short-term debt (BTFs) 51.9% 48.1% 71.5% 63.0% 61.1% 51.9% 56.7% 64.4% 71.5% 69.4% 64.6% 68.3% + 3.7pt

Average maturity 6years 6 years 6 years 6 years 6 years 5 years 5 years 6 years 6 years 7 years 7 years 6 years

(before swaps) 57days 93 days 99 days 64 days 47 days 343 days 297 days 79 days 267 days 45 days 51 days 292 days - 124 days

Source: Agence France Trésor, Banque de France

(1) For these, the government’s real commitment on a given date is equal to the par value multiplied by the index-linking coefficient for that date; at the end of 2008, the index-linking commitment stood at €16,344 million.


Government cash positionbreakdown of investment operations in 2008


repos interbank loansand loans to eurozone countries

€ 18.91 bn average dailyinvestment outstanding

56%

44%

Swaps programme

€28.4 bn outstanding at end of 2008 (€41.6 bn end of 2007)• Suspension of swaps programme announced in September 2002

maintained owing to market conditions.

Plus renewal of maturing short-term swaps (€4.1 bn).

Average maturity• before swaps: 6 years and 292 days end 2008 (-124 days compared

with the end of 2007)• after swaps: 6 years and 276 days end 2008 (-118 days compared

with the end of 2007)

2008 financing• €128.5 bn medium- and long-term issuance (net of buybacks,

par value)

€62.6 bn index-linked OATs (OATi and OAT€i)

€1.8 bn OAT buybacks

€0.2 bn debt exchange transaction

€52.6 bn fixed-rate BTANs

€2.0 bn index-linked BTANs

€0.5 bn BTAN buybacks

• €59.8 bn increase in BTFs outstanding

Flow of government funding

€ billion 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Borrowing requirement 84.0 94.0 84.7 81.5 85.6 90.6 109.6 119.5 112.8 112.9 115.8 104.8 163.99

Redemption of medium- and long-term debt (1)

38.1 53.8 51.1 41.6 57.1 51.3 59.4 62.5 66.5 65.6 77.6 69.1 97.58

Redemption of long-term debt 8.4 28.3 10.8 12 14.2 14.8 14.6 30.3 36.0 33.1 43.2 31.9 39.33

Redemption of medium-term debt 29.7 25.5 40.3 29.6 42.9 36.5 44.8 32.2 30.5 32.5 34.4 37.2 58.25

Redemption of debt assumed _ _ _ _ _ _ _ _ _ _ 2.8 0.6 10.27

Change in guarantee deposits _ _ _ _ _ _ _ _ _ _ _ 0.5 -0.39

Change in other cash requirements 0.12

Cash impact of budget balance (2) 45.9 40.2 33.6 39.9 28.5 39.3 50.2 57.0 46.4 47.3 35.4 34.6 56.41

Funding sources 84.0 94.0 84.7 81.5 85.6 90.6 109.6 119.5 112.8 112.9 115.8 104.8 163.99

Medium- and long-term issuance net of buybacks (3)

84.9 94.3 90.6 78 80.8 78.7 86.9 111.5 121.6 109.7 111.9 97.6 128.53

Cancellation of securities bought back by CDP

_ _ _ _ _ _ _ _ _ _ _ 0 0.00

Change in BTFs -3.6 0 6 -13.5 9.3 9.4 35.7 20.5 -11.6 -1.7 -29.1 12.2 59.83

Change in correspondents’ deposits 1.9 2.9 5.6 5.4 -5.7 -2.3 5.1 -14.6 1.7 6.7 5.1 2.6 -1.63

Change in Treasury account (4) 1.6 -3.2 -13.3 10.9 1.9 8 -16.4 0.2 -2.2 -5.9 25.9 -8.1 -25.27

Change in cash advances 0.12

Other cash sources -0.8 0 -4.2 0.7 -0.7 -3.2 -1.7 1.9 3.4 4.2 1.9 0.5 2.41

Source: Agence France Trésor (1) Par value. (2) This figure at December 31 does not correspond to the budget execution deficit, which includes the additional period. (3) Par value. (4) Including short-term investment; a plus sign indicates a reduction in the amount outstanding.

65

Financial Review

Interest rate swaps - outstanding and impact on the maturityof negotiable government debt

68 months70 months72 months74 months76 months78 months80 months82 months84 months86 months88 months90 months

9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 12/08€0 bn

€15 bn

€30 bn

€45 bn

€60 bn

€75 bn

maturity before swaps (left scale)

swaps outstanding (right scale)


maturity after swaps (left scale)-40

0

40

80

120

160

200

borrowing requirement funding sources

others

change in Treasury account

change in correspondents’deposits

net change in BTFs

medium- and long-term issues

budget deficit (cash basis)

redemption of medium-and long-term debt

Source: Agence France Trésor ; DGFiP

Government borrowing requirement and funding sources in 2008

� billion

� billion

interest redemption

OATs and BTANs: planned repayment schedule for 2009*as of December 31, 2008

* excluding the impact of transactions to be carried out in 2009


0

5

10

15

20

25

30

35

1/09 2/09 3/09 4/09 5/09 6/09 7/09 8/09 9/09 10/09 11/09 12/09

Cash basis accounting • €44.46 bn net cost of negotiable debt in 2008 after cash management

transactions

(€43.8 bn excluding revenues from investments and advances)

€41.2 bn provided for in initial Budget Act

• €44.3 bn net cost of negotiable debt in 2008 after balance of inflows from

interest rate swaps

€0.16 bn reduction of cost due to interest-rate swaps

• +€4.9 bn additional cost compared with 2007

+€1.7 bn for BTFs and cash position

+€0.2 bn for BTANs

+€3.0 bn for OATs

Accrual basis accounting• €44.1 bn net cost of negotiable debt in 2008 after cash management

transactions

(€43.5 bn excluding revenues from investments and advances)• €43.9 bn net cost of negotiable debt in 2008 after interest rate swaps

€0.14 bn reduction of cost due to interest-rate swaps• €3.7 bn additional cost compared with 2007

+€1.9 bn for OATs

+€1.5 bn for BTFs and cash position

+€0.3 bn for BTANs• €0.38 bn in non-recurring income (buybacks)



Cost of negotiable debt service and government cash position – cash basis (*)

Cost of negotiable debt service and government cash position – accrual basis (*)

Source: Agence France Trésor; DGFiP (*) Based on the new LOLF classification in 2006 (1) Including provisions for index-linking of OATi and OAT€i principal. (2) Difference between (interest paid on accounts and deposits of Treasury correspondents and others and interest on bond issues and repos) – (interest on the Treasury’s current account at the Banque de France and interest on short-term loans and repos involving government securities) (3) Expenses related to negotiable debt management and interest paid on margin calls. (4) Advances granted and repaid the same year by various social security organisations and government-owned entitites. (5) Net cost of OATs and BTANs, plus interest paid on BTFs. (6) A minus sign indicates income.

Source : Agence France Trésor (*) Based on the new LOLF classification in 2006(1) Difference between (interest paid on accounts and deposits of Treasury correspondents and others and interest on bond issues and repos) – (interest on the Treasury’s current account at the Banque de France and interest on short-term loans and repos involving government securities) (2) Expenses related to negotiable debt management and interest paid on margin calls. (3) Reported values equal to cash basis figures. (4) Advances granted and repaid the same year by various social security organisations and government-owned entities.

€ million 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008OATs 22,411 24,080 24,239 24,971 26,420 26,838 28,563 28,866 29,465 30,060 29,121 30,282 32,231

Accrued interest 22,057 23,807 24,094 24,879 26,146 26,609 28,135 28,349 28,469 28,707 28,134 27,939 28,437

Accrued liabilities – index-linking of OATi and OAT€i principal amounts

— — 13 51 218 250 496 642 1,168 1,695 1,257 2,534 3,792

Accrued liabilities – amortisation of issue premiums and dis-counts

354 273 132 40 56 -21 -68 -125 -171 -341 -270 -191 1

BTANs 8,396 8,224 7,851 7,447 6,849 7,078 6,575 6,523 6,689 6,566 6,378 6,802 7,116

Accrued interest 8,379 8,431 7,917 7,535 6,853 7,049 6,550 6,634 6,909 6,689 6,236 6,456 6,508

Accrued liabilities – index-linking of BTAN€i principal amounts _ _ _ _ _ _ _ _ _ _ 63 171 302

Accrued liabilities – amortisation of issue premiums and dis-counts

17 -207 -66 -88 -4 29 25 -111 -220 -123 78 175 307

BTFs and cash management – net cost 1,747 997 1,159 696 1,025 1,699 1,787 1,690 1,704 1,465 2,060 3,224 4,720

Accrued interest on BTFs (+) 2,197 1,500 1,720 1,259 1,579 2,180 2,335 2,483 2,214 1,972 2,243 3,159 4,176

Various organisations’ debt assumed by the State (+) _ _ _ _ _ _ _ _ _ 21 16 520

Cash management (1) (+) _ _ _ _ _ _ _ _ _ -210 34 11

Miscellaneous expenses (2) (+) _ _ _ _ _ _ _ _ _ 46 16 13

Interest from investments (3) (-) 418 462 512 503 534 456 526 769 494 490 _ _ _

Interest received on advances (3) (4) (-) 32 41 49 60 20 25 22 24 16 17 _ _ _Non-negotiable debt _ _ _ _ _ _ _ _ _ _ 6 4 15

Total net cost 32,554 33,300 33,249 33,113 34,294 35,614 36,925 37,079 37,858 38,091 37,565 40,312 44,081

Negotiable debt, excluding cash management results (5) 33,004 33,803 33,810 33,676 34,848 36,095 37,473 37,872 38,369 38,598 37,742 40,243 43,523Interest-rate swaps – net cost (4) — — — — — -20 -213 -246 -415 -510 -423 -272 -136

Non-recurring expenses/income – buyback premiums and discounts

85 22 1,219 37 459 1,227 313 307 112 238 107 -31 382

€ million 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

OATs – net cost 21,878 23,262 23,648 24,724 26,200 27,387 27,842 28,922 29,527 29,922 30,407 29,520 32,554

Interest paid (1) (+) 23,244 24,675 25,218 25,841 27,446 28,615 29,115 30,130 30,910 31,244 31,528 30,885 33,938

Revenue from accrued interest on issue (-) 1,367 1,413 1,570 1,117 1,246 1,228 1,273 1,208 1,383 1,321 1,121 1,365 1,384BTANs – net cost 8,152 7,984 8,206 7,739 6,693 6,503 6,850 6,248 6,613 6,975 6,557 6,671 6,846

Interest paid (+) 9,008 8,591 9,289 8,496 7,897 7,386 7,630 6,807 7,198 7,537 7,286 7,375 7,532

Revenue from accrued interest on issue (-) 856 607 1,083 756 1,204 883 780 559 585 562 729 704 686BTFs and cash management – net cost 1,497 1,000 1,238 539 1,328 1,654 1,994 1,646 1,603 1,541 1,972 3,356 5,049

Interest paid on BTFs (+) 1,947 1,503 1,799 1,102 1,882 2,135 2,542 2,439 2,113 2,047 2,220 3,405 4,396

Various organisations’ debtassumed by the State (+)

_ _ _ _ _ _ _ _ _ 21 16 626

Cash management (2) (+) _ _ _ _ _ _ _ _ _ -275 -80 14

Miscellaneous expenses (3) (+) _ _ _ _ _ _ _ _ _ 6 16 13

Interest from investments (-) 418 462 512 503 534 456 526 769 494 490 _ _ _

Interest received on advances (4) (-) 32 41 49 60 20 25 22 24 16 17 _ _ _

Non-negotiable debt interest 6 4 15

Total net cost 31,526 32,246 33,092 33,003 34,222 35,544 36,686 36,816 37,743 38,438 38,942 39,550 44,464

Negotiable debt excluding cash mana-gement results (5)

31,976 32,749 33,653 33,566 34,775 36,025 37,234 37,609 38,253 38,944 39,185 39,596 43,796

Interest-rate swaps – net cost (6) — — — — — — -155 -236 -295 -479 -519 -273 -156

67

Financial Review

Holdings of OATs and BTANs by non-residentsas a %


0

10

20

30

40

50

60

70

80

90

OAT BTAN

12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08

Medium-and long-term negotiable government debtas of December 31, 2008

0

5

10

15

20

25

200

9

par value of each line, €bn


201

0

201

1

201

2

2013

2013

201

4

201

5

201

6

2017

>201

7

205

5

BTAN OAT OATi & OAT€i BTAN€i

Issues

OAT • Issue of two new fixed-rate lines OAT 4% April 2018 OAT 4.25% October 2018 Issue of a new line indexed on the French consumer price index (excluding tobacco) OATi 2.1% July 2023

BTAN • Issue of three new lines: BTAN 3.75% September 2010 BTAN 3.75% January 2013 BTAN 4.5% July 2013

Debt exchange transaction in December 2008 • No impact on cash position

€1.13 bn securities bought back

€1.37 bn securities issued

Buybacks

• €2.3 bn securities bought back (cash position)

€0.5 bn BTANs

€1.8 bn OATs

Redemptions

• €39.3 bn OATs

• €58.3 bn BTANs

€ million par value cash flow

oAT BTAn Total oAT BTAn Total

Outstandings at end-2007 629,890 201,188 831,078 / / /

Redemptions 39,326 58,254 97,580 39,326 58,254 97,580

Issues for institutional investors 76,065 54,524 130,589 74,682 54,564 129,246

Auctions 73,065 54,524 127,589 71,680 54,564 126,244

Syndication 3,000 0 3,000 3,002 0 3,002

Debt exchange transactions 238 238 0 0

Buybacks* 1,835 450 2,285 1,849 453 2,303

Reverse auctions 0 0 0 0 0 0

Over the counter 1,835 450 2,285 1,849 453 2,303

Net flow in 2008 35,142 -4,180 30,963 33,507 -4,143 29,364

o/w issues net of buybacks and exchanges 74,468 54,074 128,542 72,833 54,111 126,944

Outstandings at end-2008 665,032 197,008 862,040 / / /

Medium- and long-term government debt

Source: Agence France Trésor* excluding buybacks of lines maturing during the year (shown under “redemptions”); par values do not include index-linking supplements for index-linked lines (€9 million in 2008)


issues in 2008 – by line * outstandings (par value)

2008 flow

€ million end-2007 end-2008 par value cash

Total BTANs (1) 112,908 167,082 54,524 54,564

1-year BTANs 29,614 31,160 1,896 1,888

3.5% July 2009 17,107 17,908 801 793

4% September 2009** 12,507 13,252 1,095 1,096

2-year BTANs 31,962 49,470 17,508 17,385

3% January 2010 16,821 18,626 1,805 1,789

2.5% July 2010 15,141 17,926 2,785 2,717

3.75% September 2010 0 12,918 12,918 12,879

3-year BTANs 31,718 35,876 4,158 4,172

3% January 2011 17,395 19,063 1,668 1,685

3.5% July 2011 14,323 16,813 2,490 2,487

4-year BTANs 12,261 13,556 1,295 1,291

4.5% July 2012 12,261 13,556 1,295 1,291

5-year BTANs 0 27,695 27,695 27,742

3.75% January 2013 0 15,718 15,718 15,550

4.5% July 2013 0 11,977 11,977 12,191

Index-linked BTANs 7,353 9,325 1,972 2,085

BTAN€i 1.25% July 2010 7,353 9,325 1,972 2,085

Total OATs 246,062 323,494 76,065 74,682

Fixed-rate OATs <5 years 15,312 16,042 730 755

5.5% April 2010 15,312 16,042 730 755

5/15-year fixed-rate OATs 137,267 191,125 53,858 52,745

4% April 2013 19,137 19,827 690 689

4% October 2013 17,597 18,975 1,378 1,437

4% April 2014 18,040 19,255 1,215 1,243

4% October 2014 14,106 17,069 2,963 2,940

3.5% April 2015 18,055 19,388 1,333 1,279

3% October 2015 17,450 20,065 2,615 2,472

4.25% October 2017 9,068 16,662 7,594 7,653

4% April 2018 0 21,294 21,294 20,593

4.25% October 2018 0 6,722 6,722 6,647

4.25% April 2019 17,344 19,848 2,504 2,487

4.25% October 2023 6,470 12,020 5,550 5,305

15/50-year fixed-rate OATs 22,076 31,411 7,968 7,052

4% October 2038** 8,453 16,485 6,665 5,892

4% April 2055 13,623 14,926 1,303 1,161

Index-linked OATs 71,407 84,916 13,509 14,129

OATi 1.6% July 2011 13,982 15,313 1,331 1,449

OATi 2.5% July 2013 13,942 15,266 1,324 1,515

OAT€i 1.6% July 2015 10,388 11,433 1,045 1,117

OATi 1% July 2017 14,165 16,914 2,749 2,652

OAT€i 2.25% July 2020 12,027 14,686 2,659 2,983

OATi 2.1% July 2023 0 4,289 4,289 4,266

OATi 3.4% July 2029 6,903 7,015 112 147

Source: Agence France Trésor(1) Excluding 2008 BTAN issues, treated as BTFs* Excluding debt exchange transaction and buybacks** See also buybacks and debt exchange

Medium-and long-term government debt

Buybacks in 2008 – by line outstandings(par value)

2008 flow

€ million end-2007 end-2008 par value cash

Over-the-counter buybacks 2,285 2,303

BTAN 3.5% January 2009 16,305 16,205 100 100

BTAN 4% September 2009 12,507 13,252 350 354

OAT TEC10 January 2009 9,853 8,688 1,165 1,162

OATi 3% July 2009 13,811 13,761 50 59

OAT 4% October 2009 19,844 19,224 620 629

Breakeven inflation daily quotes in %

(1) difference between the yield of the OAT 4% April 2013 and the yield of the OATi 2.5% July 2013(2) difference between the yield of the OAT 5% April 2012 and the yield of the OAT€i 3% July 2012

(3) difference between the yield of the OAT 5.5% April 2029 and the yield of the OATi 3.4% July 2029

(4) difference between the yield of the OAT 5.75% October 2032 and the yield of the OAT€i 3.15% July 2032

Source: Bloomberg

0.1

0.4

0.7

1.0

1.3

1.6

1.9

2.2

2.5

2.8

France 10 years (1) Euro zone 10 years (2)France 30 years (3) Euro zone 30 years (4)

12/1/05 3/1/06 6/1/06 9/1/06 12/1/06 3/1/07 6/1/07 9/1/07 12/1/07 3/1/08 6/1/08 9/1/08 12/1/08

Yield at issue of OATs and BTANs


10-year OATs 5-year BTANs 2-year BTANs

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 12/08

non-resident investors

French insurance companies

French credit institutions

UCITS (French money funds)

others (French)

OAT ownership by type of holder fourth quarter 2008structure in %

Source: Banque de France

5921

14

4 3

69

Financial Review

Outstanding end-2007 78,456

Issues in 2008* 317,141

1-month BTF 44,650

3-month BTF 167,020

6-month BTF 53,457

1-year BTF 52,014

Redemptions in 2008* 257,316

1-month BTF 38,050

3-month BTF 127,954

6-month BTF 44,767

1-year BTF 46,545

Outstanding end-2008 138,281

Source: Agence France trésor* includes 2008 BTAn issues, treated as BTFs

BTFs outstanding and flows

Short-term debt BTFs outstanding

€59.8 bn increase in 2008 Rate

European Central Bank (ECB) refinancing rate at 2.50% on 10 December 2008

Non-resident holdings

Non-residents’ share of holdings at the end of 2008: 68.3%

Holdings of BTFs by non-residents


40

45

50

55

60

65

70

75

12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08

as a %

Yield at issue of 3-month BTFs monthly average as a %


1.5

2.0

2.5

3.0

3.5

4.0

4.5

1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 12/08

€ million

Weekly profile of BTFs outstanding (*)€ billion

65

75

85

95

105

115

125

135

145

1/1 1/4 1/7 1/10 1/1

2005 2006 2007 2 008

Source: Agence France Trésor(*) including short-term BTFs


oAT end-2007 end-2008

Maturing 2008 39,326,343,494

OAT 5.25% April 25, 2008 21,542,182,367 _

OAT 8.5% October 25, 2008 17,784,161,127 _

Maturing 2009 64,242,666,698 62,830,268,566

OAT TEC10 January 25, 2009 9,853,044,498 8,688,044,498

OAT 4% April 25, 2009 18,640,258,371 18,640,258,371

OATi 3% July 25, 2009 15,905,226,791 16,277,828,659

par value 13,811,416,109 13,761,416,109(1)

OAT 4% October 25, 2009 19,844,137,038 19,224,137,038

Maturing 2010 31,162,742,970 31,892,742,970

OAT 5.5% April 25, 2010 15,311,719,352 16,041,719,352

OAT 5.5% October 25, 2010 15,851,023,618 15,851,023,618

Maturing 2011 48,667,349,982 50,546,206,352

OAT 6.5% April 25, 2011 19,572,445,710 19,572,445,710

OATi 1.6% July 25, 2011 15,040,017,940 16,918,874,310

par value 13,982,000,000 15,313,000,000(2)

OAT 5% October 25, 2011 14,054,886,332 14,054,886,332

Maturing 2012 58,591,933,863 59,113,572,923

OAT 5% April 25, 2012 17,169,110,580 17,169,110,580

OAT€i 3% July 25, 2012 16,383,003,020 16,904,642,080

par value 14,494,000,000 14,494,000,000(3)

OAT 4.75% October 25, 2012 19,554,122,924 19,554,122,924

OAT 8.5% December 26, 2012 5,485,697,339 5,485,697,339

Maturing 2013 51,971,024,911 55,938,963,243

OAT 4% April 25, 2013 19,137,183,879 19,827,183,879

OATi 2.5% July 25, 2013 15,237,083,353 17,137,021,685

par value 13,941,882,471 15,265,882,471(4)

OAT 4% October 25, 2013 17,596,757,679 18,974,757,679

Maturing 2014 32,145,724,224 36,323,724,224

OAT 4% April 25, 2014 18,039,752,234 19,254,752,234

OAT 4% October 25, 2014 14,105,971,990 17,068,971,990

Maturing 2015 46,639,795,573 52,098,097,563

OAT 3.5% April 25, 2015 18,055,313,893 19,388,313,893

OAT€i 1.6% July 25, 2015 11,134,481,680 12,644,783,670

par value 10,388,000,000 11,433,000,000(5)

OAT 3% October 25, 2015 17,450,000,000 20,065,000,000

Maturing 2016 42,483,000,000 42,483,000,000

OAT 3.25% April 25, 2016 20,461,000,000 20,461,000,000

OAT 5% October 25, 2016 22,022,000,000 22,022,000,000

Maturing 2017 43,756,028,950 54,678,772,060

OAT 3.75% April 25, 2017 19,990,000,000 19,990,000,000

OATi 1% July 25, 2017 14,698,028,950 18,026,772,060

par value 14,165,000,000 16,914,000,000(6)

OAT 4.25% October 25, 2017 9,068,000,000 16,662,000,000

Maturing 2018 28,016,000,000

OAT 4% April 25, 2018 _ 21,294,000,000

OAT 4.25% October 25, 2018 _ 6,722,000,000

oAT end-2007 end-2008

Maturing 2019 26,203,941,765 28,709,468,664

OAT 4.25% April 25, 2019 17,344,000,000 19,848,000,000

OAT 8.5% October 25, 2019 8,844,392,893 8,844,392,893

ETAT 9.82% December 31, 2019 15,548,872 17,075,771

par value 6,692,154 6,692,154(7)

Maturing 2020 13,155,733,950 16,575,647,620

OAT€i 2.25% July 25, 2020 13,155,733,950 16,575,647,620

par value 12,027,000,000 14,686,000,000(8)

Maturing 2021 19,857,000,000 19,857,000,000

OAT 3.75% April 25, 2021 19,857,000,000 19,857,000,000

Maturing 2022 1,243,939,990 1,243,939,990

OAT 8.25% April 25, 2022 1,243,939,990 1,243,939,990

Maturing 2023 17,076,195,903 27,057,590,703

OAT 8.5% April 25, 2023 10,606,195,903 10,606,195,903

OATi 2.1% July 25, 2023 0 4,431,394,800

par value 0 4,289,000,000(9)

OAT 4.25% October 25, 2023 6,470,000,000 12,020,000,000

Maturing 2025 9,671,928,118 9,671,928,118

OAT 6% October 25, 2025 9,671,928,118 9,671,928,118

Maturing 2028 14,480,883 15,303,907

OAT zero coupon March 28, 2028 14,480,883 15,303,907

par value 46,232,603 46,232,603(10)

Maturing 2029 23,416,922,777 23,763,737,970

OAT 5.5% April 25, 2029 15,500,880,458 15,500,880,458

OATi 3.4% July 25, 2029 7,916,042,319 8,262,857,512

par value 6,903,144,000 7,015,144,000(11)

Maturing 2032 28,423,346,310 27,602,980,830

OAT€i 3.15% July 25, 2032 9,685,346,310 9,993,658,230

par value 8,739,000,000 8,739,000,000(12)

OAT 5.75% October 25, 2032 18,738,000,000 17,609,322,600

Maturing 2035 15,614,000,000 15,614,000,000

OAT 4.75% April 25, 2035 15,614,000,000 15,614,000,000

Maturing 2038 8,453,000,000 16,485,000,000

OAT 4% October 25, 2038 8,453,000,000 16,485,000,000

Maturing 2040 4,959,649,530 5,117,526,610

OAT€I 1.8% July 25, 2040 4,959,649,530 5,117,526,610

par value 4,831,000,000 4,831,000,000(13)

Maturing 2055 13,623,000,000 14,926,000,000

OAT 4% April 25, 2055 13,623,000,000 14,926,000,000

Total OAT 640,699,749,891 680,561,472,313

par value 629,890,473,630 665,032,452,736

(1) par value x index coefficient (1.15160 end-2007; 1.18286 end-2008)(2) par value x index coefficient (1.07567 end-2007; 1.10487 end-2008)(3) par value x index coefficient (1.13033 end-2007; 1.16632 end-2008 )(4) par value x index coefficient (1.09290 end-2007; 1.12257 end-2008)(5) par value x index coefficient (1.07186 end-2007; 1.10599 end-2008)(6) par value x index coefficient (1.03763 end-2007; 1.06579 end-2008)(7) including capitalised interest at December 31(8) par value x index coefficient (1.09385 end-2007; 1.12867 end-2008)(9) valeur nominale x coeff d'indexation (1,03320 fin 2008)(9) par value x index coefficient (1.03320 end-2008)(10) present value on March 28 (11) par value x index coefficient (1.14673 end-2007; 1.17786 end-2008)(12) par value x index coefficient (1.10829 end-2007; 1.14357 end-2008)(13) par value x index coefficient (1.02663 end-2007; 1.05931 end-2008)

Breakdown of negotiable government debt€

71

Financial Review

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

12/30/07 3/30/08 6/30/08 9/30/08 12/30/08

3 month T-Bills

Three month T-Bill yield and 3 month Euribordaily values in %

3 month Euribor

Source: Bloomberg

2.0%

12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

10-year constant maturity rate (TEC10)

daily values in %

Source: Bloomberg

BTAn end-2007 end-2008

Maturing 2008 58,253,504,000

BTAN 3.5% January 12, 2008 18,926,000,000 _

BTAN 2.75% March 12, 2008 8,745,000,000 _

BTAN 3% July 12, 2008 19,139,000,000 _

BTAN 3.5% September 12, 2008 11,443,504,000 _

Maturing 2009 45,919,000,000 47,365,000,000

BTAN 3.5% January 12, 2009 16,305,000,000 16,205,000,000

BTAN 3.5% July 12, 2009 17,107,000,000 17,908,000,000

BTAN 4% September 12, 2009 12,507,000,000 13,252,000,000

Maturing 2010 39,695,370,690 59,589,676,500

BTAN 3% January 12, 2010 16,821,000,000 18,626,000,000

BTAN 2.5% July 12, 2010 15,141,000,000 17,926,000,000

BTAN€i 1.25% July 25, 2010 7,733,370,690 10,119,676,500

par value 7,353,000,000 9,325,000,000(14)

BTAN 3.75% September 12, 2010 _ 12,918,000,000

Maturing 2011 31,718,000,000 35,876,000,000

BTAN 3% January 12, 2011 17,395,000,000 19,063,000,000

BTAN 3.5% July 12, 2011 14,323,000,000 16,813,000,000

Maturing 2012 25,982,000,000 27,277,000,000

BTAN 3.75% January 12, 2012 13,721,000,000 13,721,000,000

BTAN 4.5% July 12, 2012 12,261,000,000 13,556,000,000

Maturing 2013 27,695,000,000

BTAN 3.75% January 12, 2013 _ 15,718,000,000

BTAN 4.5% July 12, 2013 _ 11,977,000,000

Total BTANs 201,567,874,690 197,802,676,500

par value 201,187,504,000 197,008,000,000

Total BTFs 78,456,000,000 138,281,000,000

Overall total 920,723,624,581 1,016,645,148,813

par value 909,533,977,630 1,000,321,452,736

Breakdown of negotiable government debt

Issue of new government securities

(14) par value x index coefficient (1.05173 end-2007; 1.08522 end-2008)

oAT

OAT 4% April 25, 2018 Order of March 28, 2008 (O. J. dated 4/4/2008)

OAT 4.25% October 25, 2018 Order of September 26, 2008 (O. J. dated 10/2/2008)

OATi 2.1% July 25, 2023 Order of February 11, 2008 (O. J. dated 2/19/2008)

BTAn

BTAN 3.75% September 12, 2010 Order of May 9, 2008 (O. J. dated 5/16/2008)

BTAN 3.75% January 12, 2013 Order of January 7, 2008 (O. J. dated 1/12/2008)

BTAN 4.5% July 12, 2013 Order of July 11, 2008 (O. J. dated 7/17/2008)

€


Stripping and reassembly activity

€ billion

Source: Euroclear

stripping

reassembly

strips outstanding(right hand scale)

0

1

2

3

4

5

2000 2001 2002 2003 2004 2005 2006 2007 2008

30

35

40

45

50

55

Source: primary dealers

Primary dealers, repos outstanding at end of month

€ billion

050

100150200250300350400450500550600

12/06 2/07 4/07 6/07 8/07 10/07 12/07 2/08 4/08 6/08 8/08 10/08 12/08

fixed-rate repos floating-rate repos others

Primary dealers, monthly fixed-rate repo transactions

€ billion

Source: primary dealers

0

50

100

150

200

250

300

350

400

450

12/06 2/07 4/07 6/07 8/07 10/07 12/07 2/08 4/08 6/08 8/08 10/08 12/08

12-35 days > 35 days1-3 days 4-11 days

Turnover on the 5 most liquid OATs and the 4 most liquid BTANs

daily average (€ billion)

Source: Euroclear France

0

5

10

15

20

25

30

35

40

45

1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 12/08

OAT BTAN

Secondary market for government debt

73

Financial Review

Auction date settlement date

Amount announced Auctioned line Bid amount Amount

served

o/w ncTsbefore

auctions

ncTs afterauctions

Total par amount issued

Bid-to-cover ratio

weighted average price

(ex. index-linking)

Yield to maturity

index coefficient

net cash amount

01/03/2008 01/08/2008 5,200-5,700 OAT 4.25% October 25, 2017 6,370 2,600 0 535 3,135 2.45 99.48% 4.31% 3,118.7

01/03/2008 01/08/2008 5,200-5,700 OAT 4% October 25, 2038 3,850 1,430 0 144 1,574 2.69 89.99% 4.61% 1,416.401/03/2008 01/08/2008 5,200-5,700 OAT 4% April 25, 2055 1,925 1,190 0 113 1,303 1.62 89.09% 4.57% 1,160.801/17/2008 01/22/2008 1,000-1,500 OAT€i 2.25% July 25, 2020 2,485 640 0 6 646 3.88 103.85% 1.90% 1.09804 736.602/07/2008 02/12/2008 5,200-5,700 OAT 4.25% October 25, 2017 7,320 2,275 0 429 2,704 3.22 101.87% 4.01% 2,754.602/07/2008 02/12/2008 5,200-5,700 OAT 4.25% April 25, 2019 4,320 1,620 0 101 1,721 2.67 101.36% 4.10% 1,744.402/07/2008 02/12/2008 5,200-5,700 OAT 4.25% October 25, 2023 4,885 1,605 0 292 1,897 3.04 99.11% 4.33% 1,880.102/13/2008 02/20/2008 NS OATi 2.1% July 25, 2023 (1) NS 3,000 NS NS 3,000 NS 98.685% 2.20% 1.01416 3,002.503/06/2008 03/11/2008 5,000-5,500 OAT 3% October 25, 2015 3,035 2,535 0 80 2,615 1.20 94.53% 3.84% 2,472.003/06/2008 03/11/2008 5,000-5,500 OAT 4.25% October 25, 2017 3,525 1,395 0 360 1,755 2.53 101.42% 4.07% 1,779.903/06/2008 03/11/2008 5,000-5,500 OAT 4% October 25, 2038 2,770 1,094 0 287 1,381 2.53 89.03% 4.68% 1,229.503/20/2008 03/26/2008 1,200-1,700 OATi 1% July 25, 2017 1,559 474 0 0 474 3.29 93.36% 1.78% 1.04650 463.104/03/2008 04/08/2008 4,500-5,500 OAT 4% April 25, 2018 10,085 5,145 0 620 5,765 1.96 98.10% 4.24% 5,655.504/17/2008 04/22/2008 1,000-1,500 OATi 2.5% July 25, 2013 3,383 1,100 0 104 1,204 3.08 103.86% 1.73% 1.10364 1,380.104/17/2008 04/22/2008 1,000-1,500 OAT€i 2.25% July 25, 2020 1,227 372 0 61 433 3.30 102.10% 2.05% 1.10244 487.404/30/2008 05/06/2008 5,000-5,500 OAT 4% October 25, 2014 4,600 1,780 0 0 1,780 2.58 99.27% 4.13% 1,767.004/30/2008 05/06/2008 5,000-5,500 OAT 4% April 25, 2018 5,520 2,380 0 0 2,380 2.32 97.18% 4.35% 2,312.904/30/2008 05/06/2008 5,000-5,500 OAT 4.25% October 25, 2023 3,261 1,311 0 348 1,659 2.49 95.79% 4.63% 1,589.205/15/2008 05/20/2008 1,200-1,700 OATi 1.6% July 25, 2011 2,600 1,210 0 121 1,331 2.15 99.69% 1.70% 1.09204 1,449.005/15/2008 05/20/2008 1,200-1,700 OAT€i 1.6% July 25, 2015 1,531 416 0 104 520 3.68 98.00% 1.90% 1.08811 554.506/05/2008 06/10/2008 4,000-5,000 OAT 4% April 25, 2018 7,335 3,165 0 278 3,443 2.32 95.24% 4.61% 3,279.106/05/2008 06/10/2008 4,000-5,000 OAT 4% October 25, 2038 3,485 1,255 0 380 1,635 2.78 85.21% 4.95% 1,393.206/19/2008 06/24/2008 1,200-1,700 OATi 2.1% July 25, 2023 1,750 785 0 209 994 2.23 95.32% 2.48% 1.02688 972.906/19/2008 06/24/2008 1,200-1,700 OAT€i 2.25% July 25, 2020 1,664 874 0 26 900 1.90 99.29% 2.32% 1.11753 998.607/03/2008 07/08/2008 5,000-5,500 OAT 4% April 25, 2018 5,648 2,723 0 695 3,418 2.07 93.45% 4.85% 3,194.107/03/2008 07/08/2008 5,000-5,500 OAT 4.25% April 25, 2019 3,225 710 0 73 783 4.54 94.86% 4.87% 742.807/03/2008 07/08/2008 5,000-5,500 OAT 4.25% October 25, 2023 3,155 1,945 0 49 1,994 1.62 92.06% 5.00% 1,835.707/17/2008 07/22/2008 1,000-1,500 OATi 1% July 25, 2017 1,615 795 0 0 795 2.03 90.25% 2.20% 1.06401 763.407/17/2008 07/22/2008 1,000-1,500 OAT€i 1.6% July 25, 2015 1,745 525 0 0 525 3.32 97.28% 2.02% 1.10060 562.109/04/2008 09/09/2008 5,200-5,700 OAT 3.5% April 25, 2015 2,795 1,195 0 138 1,333 2.34 95.97% 4.21% 1,279.309/04/2008 09/09/2008 5,200-5,700 OAT 4% April 25, 2018 5,640 2,965 0 558 3,523 1.90 97.20% 4.36% 3,424.409/04/2008 09/09/2008 5,200-5,700 OAT 4% October 25, 2038 2,170 1,045 0 67 1,112 2.08 88.67% 4.71% 986.009/18/2008 09/23/2008 1,000-1,500 OATi 1% July 25, 2017 2,460 1,000 0 0 1,000 2.46 90.90% 2.14% 1.06820 971.009/18/2008 09/23/2008 1,000-1,500 OAT€i 2.25% July 25, 2020 1,420 475 0 0 475 2.99 99.87% 2.26% 1.12840 535.309/18/2008 09/23/2008 1,000-1,500 OAT 4% April 25, 2013 1,340 690 0 0 690 1.94 99.79% 4.05% 688.610/02/2008 10/07/2008 5,000-5,500 OAT 4% October 25, 2014 2,365 1,030 0 153 1,183 2.30 99.13% 4.16% 1,172.710/02/2008 10/07/2008 5,000-5,500 OAT 4.25% October 25, 2018 7,075 4,210 0 614 4,824 1.68 98.55% 4.43% 4,754.110/16/2008 10/21/2008 500-1,000 OATi 2.5% July 25, 2013 810 120 0 0 120 6.75 100.27% 2.44% 1.12413 135.310/16/2008 10/21/2008 500-1,000 OATi 1% July 25, 2017 1,030 330 0 0 330 3.12 88.36% 2.50% 1.06728 311.210/16/2008 10/21/2008 500-1,000 OATi 1% July 25, 2017 615 100 0 12 112 6.15 111.39% 2.68% 1.17950 147.210/16/2008 10/21/2008 4,500-5,500 OAT 5.5% April 25, 2010 3,080 730 0 0 730 4.22 103.47% 3.10% 755.311/06/2008 11/12/2008 4,500-6,000 OAT 4% April 25, 2014 2,900 1,215 0 0 1,215 2.39 102.33% 3.52% 1,243.311/06/2008 11/12/2008 4,500-6,000 OAT 4% April 25, 2018 3,945 2,490 0 275 2,765 1.58 98.62% 4.18% 2,726.811/06/2008 11/12/2008 4,500-6,000 OAT 4.25% October 25, 2018 4,625 1,510 0 388 1,898 3.06 99.75% 4.28% 1,893.311/06/2008 11/12/2008 4,500-6,000 OAT 4.25% October 25, 2018 3,860 750 0 213 963 5.15 89.98% 4.62% 866.511/20/2008 11/25/2008 500-1,000 OATi 1% July 25, 2017 845 150 0 0 150 5.63 89.64% 2.33% 1.06655 143.411/20/2008 11/25/2008 500-1,000 OAT€i 2.25% July 25, 2020 680 205 0 0 205 3.32 97.45% 2.50% 1.12795 225.311/20/2008 11/25/2008 500-1,000 OATi 2.1% July 25, 2023 785 295 0 0 295 2.66 95.12% 2.50% 1.03393 290.111/20/2008 11/25/2008 5,000-6,000 OAT 4% October 25, 2013 3,443 1,343 0 35 1,378 2.56 104.28% 3.05% 1,437.0

Total 76,065 74,682

O/w 5-10-year OATs 46,534 45,708

O/w 10-20-year OATs 8,054 7,792

O/w 20-30-year OATs 6,665 5,892

O/w + 30-year OATs 1,303 1,161

O/w index-linked OATs (OATi & OAT€i) 13,509 14,129O/w OATi 9,805 10,029

O/w OAT€i 3,704 4,100

(1) Issued through syndication.

OAT issues€ million


Auction date settlement date

Amount announced Auctioned line Bid amount Amount

served

o/w ncTsbefore

auctions

ncTs afterauctions

Total paramount issued

Bid-to-cover ratio

weighted average price

(excl. index-linking

Yield to matu-

rity

index coefficient

net cash amount

(+)

01/17/2008 01/22/2008 5,000-5,500 BTAN 3.75% January 12, 2013 13,410 5,310 0 809 6,119 2.53 99.82% 3.79% 6,108.0

01/17/2008 01/22/2008 1,000-1,500 BTAN€i 1.25% July 25, 2010 3,659 847 0 195 1,042 4.32 99.67% 1.38% 1.05577 1,096.5

02/21/2008 02/26/2008 5,000-5,500 BTAN 2.5% July 12, 2010 3,860 1,225 0 0 1,225 3.15 97.89% 3.44% 1,199.2

02/21/2008 02/26/2008 5,000-5,500 BTAN 3.5% July 12, 2011 3,565 1,095 0 0 1,095 3.26 99.86% 3.54% 1,093.5

02/21/2008 02/26/2008 5,000-5,500 BTAN 3.75% January 12, 2013 6,157 2,857 0 0 2,857 2.16 100.31% 3.68% 2,865.9

03/20/2008 03/26/2008 4,000-4,500 BTAN 3% January 12, 2010 5,525 1,805 0 0 1,805 3.06 99.09% 3.53% 1,788.6

03/20/2008 03/26/2008 4,000-4,500 BTAN 3.5% July 12, 2011 4,215 1,395 0 0 1,395 3.02 99.90% 3.53% 1,393.6

03/20/2008 03/26/2008 4,000-4,500 BTAN 3.75% January 12, 2013 6,225 940 0 0 940 6.62 100.43% 3.65% 944.0

03/20/2008 03/26/2008 1,200-1,700 BTAN€i 1.25% July 25, 2010 2,740 930 0 0 930 2.95 100.48% 1.04% 1.05828 988.9

04/17/2008 04/22/2008 5,000-5,500 BTAN 4% September 12, 2009 5,660 1,095 0 0 1,095 5.17 100.06% 3.94% 1,095.7

04/17/2008 04/22/2008 5,000-5,500 BTAN 2.5% July 12, 2010 5,080 1,560 0 0 1,560 3.26 97.31% 3.78% 1,518.0

04/17/2008 04/22/2008 5,000-5,500 BTAN 3.75% January 12, 2013 6,715 2,705 0 0 2,705 2.48 99.04% 3.97% 2,679.0

05/15/2008 05/20/2008 4,500-5,000 BTAN 3.75% September 12, 2010 11,025 4,590 0 691 5,281 2.40 99.20% 4.11% 5,238.8

06/19/2008 06/24/2008 4,500-5,500 BTAN 3.75% September 12, 2010 5,350 2,020 0 0 2,020 2.65 97.75% 4.84% 1,974.6

06/19/2008 06/24/2008 4,500-5,500 BTAN 3.75% January 12, 2013 5,135 2,485 0 612 3,097 2.07 95.36% 4.91% 2,953.3

07/17/2008 07/22/2008 5,200-5,700 BTAN 4.5% July 12, 2012 3,590 1,295 0 0 1,295 2.77 99.70% 4.58% 1,291.1

07/17/2008 07/22/2008 5,200-5,700 BTAN 4.5% July 12, 2013 6,205 4,405 0 0 4,405 1.41 99.51% 4.61% 4,383.4

07/21/2008 07/22/2008 800 BTAN 3.75% July 12, 2009 2,543 801 0 0 801 3.17 98.97% 4.61% 792.7

09/18/2008 09/23/2008 5,000-5,500 BTAN 3.75% September 12, 2010 6,695 1,860 0 0 1,860 3.60 99.70% 3.91% 1,854.4

09/18/2008 09/23/2008 5,000-5,500 BTAN 4.5% July 12, 2013 4,710 2,470 0 0 2,470 1.91 101.82% 4.07% 2,515.0

10/16/2008 10/21/2008 4,500-5,500 BTAN 3.75% September 12, 2010 6,873 2,213 0 65 2,278 3.11 100.94% 3.23% 2,299.4

10/16/2008 10/21/2008 4,500-5,500 BTAN 4.5% July 12, 2013 6,503 2,487 0 721 3,208 2.61 102.35% 3.94% 3,283.4

11/20/2008 11/25/2008 5,000-6,000 BTAN 3.75% September 12, 2010 5,172 1,457 0 22 1,479 3.55 102.25% 2.45% 1,512.3

11/20/2008 11/25/2008 5,000-6,000 BTAN 3% January 12, 2011 5,070 1,535 0 133 1,668 3.30 101.04% 2.49% 1,685.3

11/20/2008 11/25/2008 5,000-6,000 BTAN 4.5% July 12, 2013 6,100 1,652 0 242 1,894 3.69 106.10% 3.06% 2,009.5

TOTAL 54,524 54,564

O/w 2-year BTANs 23,562 23,446

O/w 5-year BTANs 28,990 29,033

O/w BTAN€i 1,972 2,085

BTAN issues€ million

75

Financial Review

Over-the-counter buybacks by the State€ million

BTAN BUYBACKS

Month of buy-back

Line bought backAmount bought

backNet cash amount

June-08 BTAN 3.5% January 12, 2009 100.0 99.6

Oct-08 BTAN 4% September 12, 2009 350.0 353.5

Total BTANs bought back 450.0 453.1

O/w

BTANs maturing in January 2009 100.0 99.6

BTANs maturing in September 2009 350.0 353.5

Total BTANs maturing in 2009 450.00 453.1

OAT BUYBACKSMonth of buy-back

Line bought backAmount bought

backNet cash amount

Sept-08 OAT 4% October 25, 2009 100.0 99.7

Sept-08 OAT TEC 10 January 25, 2009 935.0 931.9

Oct-08 OAT TEC 10 January 25, 2009 230.0 230.0

Dec-08 OAT 4% October 25, 2009 250.0 254.1

Dec-08 OAT 4% October 25, 2009 200.0 203.6

Dec-08 OAT 4% October 25, 2009 70.0 71.2

Dec-08 OATi 3% July 25, 2009 50.0 58.9

Total OATs bought back 1,835.0 1,849.4

Total OATs maturing in 2009 1,835.0 1,849.4

Total buybacks by the State 2,285 2,302.5

O/w maturing in 2009 2,285 2,302.5

Debt exchange transaction of 4 December 2008

€ million Par value

OAT 5.75% October 2032 1,129 Securities bought back

OAT 4% October 2038 1,367 Securities issued



Auction date settlement date Term (weeks) Maturity date Amount offered Amount asked Amount served o/w ncTsbefore auctions

ncTs afterauctions

Total amount issued

Bid-to-cover ratio

weighted average price Yield to maturity

12/28/2007 01/03/2008 9 03/06/2008 2,000 3,455 2,002 0 0 2,002 1.73 3.868% 3.997% 12/28/2007 01/03/2008 13 04/03/2008 2,300 5,117 2,302 0 16 2,318 2.22 3.916% 4.041% 12/28/2007 01/03/2008 24 06/19/2008 1,700 3,055 1,700 0 12 1,712 1.80 3.992% 4.103% 01/07/2008 01/10/2008 12 04/03/2008 2,000 5,235 2,003 0 0 2,003 2.61 3.914% 4.041% 01/07/2008 01/10/2008 45 11/20/2008 1,000 2,630 1,003 0 48 1,051 2.62 3.989% 4.067% 01/07/2008 01/10/2008 49 12/18/2008 1,500 3,520 1,502 0 84 1,586 2.34 3.989% 4.061% 01/14/2008 01/17/2008 13 04/17/2008 2,500 8,030 2,504 0 225 2,729 3.21 3.945% 4.072% 01/14/2008 01/17/2008 48 12/18/2008 1,500 3,725 1,503 0 152 1,655 2.48 3.928% 4.000% 01/21/2008 01/24/2008 12 04/17/2008 2,600 5,190 2,602 0 222 2,824 1.99 3.895% 4.021% 01/21/2008 01/24/2008 25 07/17/2008 2,300 5,715 2,304 0 216 2,520 2.48 3.870% 3.975% 01/28/2008 01/31/2008 13 04/30/2008 2,700 6,605 2,704 0 90 2,794 2.44 3.880% 4.004% 01/28/2008 01/31/2008 50 01/15/2009 2,000 4,495 2,006 0 0 2,006 2.24 3.699% 3.764% 02/04/2008 02/07/2008 4 03/06/2008 2,000 3,490 2,000 0 0 2,000 1.75 3.904% 4.043% 02/04/2008 02/07/2008 12 04/30/2008 2,800 5,280 2,805 0 45 2,850 1.88 3.880% 4.005% 02/04/2008 02/07/2008 23 07/17/2008 2,000 3,085 2,000 0 182 2,182 1.54 3.855% 3.962% 02/11/2008 02/14/2008 13 05/15/2008 2,800 6,685 2,801 0 0 2,801 2.39 3.856% 3.978% 02/11/2008 02/14/2008 48 01/15/2009 2,200 4,850 2,203 0 0 2,203 2.20 3.497% 3.560% 02/18/2008 02/21/2008 7 04/10/2008 1,000 3,270 1,008 0 0 1,008 3.24 3.893% 4.026% 02/18/2008 02/21/2008 12 05/15/2008 2,800 4,875 2,803 0 9 2,812 1.74 3.891% 4.017% 02/18/2008 02/21/2008 25 08/14/2008 1,600 3,820 1,602 0 0 1,602 2.38 3.790% 3.892% 02/25/2008 02/28/2008 10 05/07/2008 1,000 2,950 1,002 0 29 1,031 2.94 3.904% 4.034% 02/25/2008 02/28/2008 13 05/29/2008 2,500 5,500 2,503 0 115 2,618 2.20 3.915% 4.040% 02/25/2008 02/28/2008 50 02/12/2009 1,600 5,030 1,605 0 18 1,623 3.13 3.671% 3.735% 03/03/2008 03/06/2008 12 05/29/2008 2,500 3,405 2,503 0 0 2,503 1.36 3.867% 3.991% 03/03/2008 03/06/2008 23 08/14/2008 1,600 2,790 1,604 0 0 1,604 1.74 3.803% 3.908% 03/03/2008 03/06/2008 49 02/12/2009 1,600 3,995 1,603 0 0 1,603 2.49 3.573% 3.637% 03/10/2008 03/13/2008 8 05/07/2008 2,000 4,080 2,004 0 96 2,100 2.04 3.926% 4.060% 03/10/2008 03/13/2008 13 06/12/2008 2,500 5,690 2,505 0 240 2,745 2.27 3.923% 4.049% 03/17/2008 03/20/2008 11 06/05/2008 1,200 2,988 1,201 0 0 1,201 2.49 3.840% 3.965% 03/17/2008 03/20/2008 12 06/12/2008 2,800 4,155 2,803 0 0 2,803 1.48 3.840% 3.963% 03/17/2008 03/20/2008 51 03/12/2009 1,600 4,010 1,603 0 0 1,603 2.50 3.560% 3.611% 03/25/2008 03/27/2008 13 06/26/2008 2,500 3,710 2,506 0 120 2,626 1.48 3.927% 4.053% 03/25/2008 03/27/2008 24 09/11/2008 1,500 2,515 1,500 0 44 1,544 1.68 3.943% 4.052% 03/25/2008 03/27/2008 15 07/12/2008 1,500 4,507 1,500 0 0 1,500 3.00 99.679% 4.083% 03/31/2008 04/03/2008 7 05/22/2008 1,500 6,135 1,501 0 128 1,629 4.09 3.890% 4.023% 03/31/2008 04/03/2008 12 06/26/2008 2,400 6,245 2,408 0 45 2,453 2.59 3.870% 3.995% 03/31/2008 04/03/2008 49 03/12/2009 1,600 5,440 1,604 0 0 1,604 3.39 3.800% 3.857% 04/07/2008 04/10/2008 13 07/10/2008 2,800 7,960 2,809 0 148 2,957 2.83 3.910% 4.035% 04/07/2008 04/10/2008 22 09/11/2008 1,200 4,271 1,202 0 0 1,202 3.55 3.887% 3.997% 04/07/2008 04/10/2008 22 09/11/2008 1,200 3,172 1,201 0 0 1,201 2.64 99.799% 3.948% 04/14/2008 04/17/2008 9 06/19/2008 2,000 5,195 2,001 0 106 2,107 2.60 3.890% 4.020% 04/14/2008 04/17/2008 12 07/10/2008 2,800 6,865 2,803 0 146 2,949 2.45 3.895% 4.021% 04/14/2008 04/17/2008 47 03/12/2009 1,200 3,425 1,200 0 0 1,200 2.85 3.844% 3.905% 04/21/2008 04/24/2008 4 05/22/2008 1,800 3,885 1,800 0 11 1,811 2.16 3.913% 4.052% 04/21/2008 04/24/2008 13 07/24/2008 2,800 7,320 2,803 0 0 2,803 2.61 3.922% 4.047% 04/21/2008 04/24/2008 24 10/09/2008 2,000 3,825 2,002 0 0 2,002 1.91 3.966% 4.076% 04/28/2008 04/30/2008 3 05/22/2008 1,300 3,580 1,304 0 12 1,316 2.75 4.005% 4.151% 04/28/2008 04/30/2008 12 07/24/2008 2,800 5,775 2,801 0 130 2,931 2.06 3.948% 4.076% 04/28/2008 04/30/2008 49 04/09/2009 2,000 4,895 2,003 0 128 2,131 2.44 4.039% 4.100% 05/05/2008 05/07/2008 13 08/07/2008 2,500 5,697 2,505 0 116 2,621 2.27 3.973% 4.101% 05/05/2008 05/07/2008 22 10/09/2008 1,500 3,805 1,504 0 52 1,556 2.53 3.998% 4.112% 05/05/2008 05/07/2008 48 04/09/2009 1,500 5,455 1,504 0 119 1,623 3.63 4.023% 4.085% 05/13/2008 05/15/2008 12 08/07/2008 2,300 5,945 2,311 0 94 2,405 2.57 3.965% 4.094% 05/13/2008 05/15/2008 51 05/07/2009 2,200 4,705 2,204 0 0 2,204 2.13 4.037% 4.095% 05/19/2008 05/22/2008 13 08/21/2008 2,600 6,580 2,604 0 0 2,604 2.53 3.984% 4.112% 05/19/2008 05/22/2008 24 11/06/2008 2,200 5,636 2,202 0 0 2,202 2.56 4.019% 4.131% 05/26/2008 05/29/2008 12 08/21/2008 2,100 4,690 2,103 0 23 2,126 2.23 4.011% 4.142% 05/26/2008 05/29/2008 49 05/07/2009 2,500 5,020 2,500 0 66 2,566 2.01 4.203% 4.267% 06/02/2008 06/05/2008 4 07/03/2008 1,000 2,570 1,000 0 14 1,014 2.57 3.997% 4.141% 06/02/2008 06/05/2008 13 09/04/2008 2,000 3,860 2,004 0 27 2,031 1.93 4.033% 4.164% 06/02/2008 06/05/2008 22 11/06/2008 2,200 3,050 2,202 0 30 2,232 1.39 4.088% 4.206% 06/09/2008 06/12/2008 12 09/04/2008 2,000 3,460 2,000 0 19 2,019 1.73 4.196% 4.337% 06/09/2008 06/12/2008 51 06/04/2009 2,000 3,485 2,003 0 166 2,169 1.74 4.656% 4.723% 06/16/2008 06/19/2008 13 09/18/2008 2,000 4,770 2,001 0 0 2,001 2.38 4.327% 4.472% 06/16/2008 06/19/2008 24 12/04/2008 2,000 4,605 2,000 0 0 2,000 2.30 4.456% 4.586%

BTF issues€ million

77

Financial Review

Auction date settlement date Term (weeks) Maturity date Amount offered Amount asked Amount served o/w ncTs

before auctionsncTs after

auctionsTotal amount

issuedBid-to-cover

ratioweighted

average price Yield to maturity

06/23/2008 06/26/2008 12 09/18/2008 2,000 5,510 2,000 0 145 2,145 2.76 4.263% 4.407%

06/23/2008 06/26/2008 49 06/04/2009 2,000 4,895 2,006 0 167 2,173 2.44 4.596% 4.666% 06/30/2008 07/03/2008 13 10/02/2008 1,800 5,054 1,802 0 130 1,932 2.80 4.302% 4.446% 06/30/2008 07/03/2008 22 12/04/2008 1,000 3,548 1,003 0 46 1,049 3.54 4.398% 4.529% 06/30/2008 07/03/2008 52 07/02/2009 1,200 4,126 1,200 0 101 1,301 3.44 4.645% 4.710% 07/07/2008 0710//2008 12 10/02/2008 2,000 5,740 2,005 0 190 2,195 2.86 4.292% 4.437% 07/07/2008 0710//2008 29 01/29/2009 1,500 4,330 1,504 0 20 1,524 2.88 4.412% 4.530% 07/07/2008 0710//2008 51 07/02/2009 2,000 4,750 2,004 0 32 2,036 2.37 4.510% 4.575% 07/15/2008 07/17/2008 8 09/11/2008 2,000 4,615 2,000 0 56 2,056 2.31 4.280% 4.432% 07/15/2008 07/17/2008 13 10/16/2008 2,500 7,430 2,506 0 256 2,762 2.96 4.305% 4.449% 07/15/2008 07/17/2008 50 07/02/2009 1,500 5,050 1,501 0 113 1,614 3.36 4.429% 4.495% 07/21/2008 07/24/2008 12 10/16/2008 2,500 6,160 2,504 0 91 2,595 2.46 4.320% 4.467% 07/21/2008 07/24/2008 13 10/23/2008 1,000 3,725 1,003 0 63 1,066 3.71 4.316% 4.461% 07/21/2008 07/24/2008 27 01/29/2009 2,000 4,645 2,003 0 114 2,117 2.32 4.429% 4.552% 07/28/2008 07/31/2008 8 09/25/2008 2,000 4,760 2,008 0 115 2,123 2.37 4.307% 4.461% 07/28/2008 07/31/2008 13 10/30/2008 2,500 6,900 2,505 0 205 2,710 2.75 4.338% 4.484% 07/28/2008 07/31/2008 52 07/30/2009 2,000 5,800 2,001 0 250 2,251 2.90 4.488% 4.551% 08/04/2008 08/07/2008 7 09/25/2008 1,000 2,910 1,004 0 29 1,033 2.90 4.307% 4.463% 08/04/2008 08/07/2008 12 10/30/2008 2,200 5,240 2,203 0 53 2,256 2.38 4.335% 4.483% 08/04/2008 08/07/2008 25 01/29/2009 1,000 3,095 1,001 0 19 1,020 3.09 4.404% 4.530% 08/04/2008 08/07/2008 51 07/30/2009 2,000 4,644 2,003 0 80 2,083 2.32 4.445% 4.509% 08/11/2008 08/14/2008 13 11/13/2008 3,000 6,385 3,008 0 39 3,047 2.12 4.332% 4.478% 08/11/2008 08/14/2008 16 12/04/2008 1,000 3,190 1,001 0 13 1,014 3.19 4.334% 4.474% 08/11/2008 08/14/2008 28 02/26/2009 1,700 4,747 1,700 0 16 1,716 2.79 4.343% 4.461% 08/18/2008 08/21/2008 5 09/25/2008 2,000 4,735 2,005 0 90 2,095 2.36 4.308% 4.468% 08/18/2008 08/21/2008 9 10/23/2008 1,000 3,400 1,002 0 19 1,021 3.39 4.320% 4.473% 08/18/2008 08/21/2008 12 11/13/2008 2,600 4,569 2,604 0 237 2,841 1.75 4.320% 4.467% 08/18/2008 08/21/2008 27 02/26/2009 1,000 5,355 1,000 0 89 1,089 5.36 4.363% 4.483% 08/25/2008 08/28/2008 5 10/02/2008 1,000 3,415 1,003 0 61 1,064 3.40 4.314% 4.474% 08/25/2008 08/28/2008 13 11/27/2008 2,800 7,668 2,809 0 279 3,088 2.73 4.337% 4.483% 08/25/2008 08/28/2008 16 12/18/2008 1,500 3,670 1,503 0 146 1,649 2.44 4.336% 4.476% 08/25/2008 08/28/2008 52 08/27/2009 1,200 5,258 1,201 0 137 1,338 4.38 4.282% 4.342% 09/01/2008 09/04/2008 5 10/09/2008 1,500 3,680 1,504 0 5 1,509 2.45 4.316% 4.476% 09/01/2008 09/04/2008 12 11/27/2008 2,500 6,690 2,505 0 95 2,600 2.67 4.331% 4.478% 09/01/2008 09/04/2008 19 01/15/2009 1,000 2,900 1,003 0 0 1,003 2.89 4.325% 4.459% 09/01/2008 09/04/2008 51 08/27/2009 1,500 3,755 1,504 0 0 1,504 2.50 4.295% 4.357% 09/08/2008 09/11/2008 1 09/18/2008 2,500 9,530 2,502 0 122 2,624 3.81 4.356% 4.526% 09/08/2008 09/11/2008 8 11/06/2008 1,500 4,255 1,509 0 84 1,593 2.82 4.341% 4.497% 09/08/2008 09/11/2008 13 12/11/2008 3,000 10,925 3,006 0 179 3,185 3.63 4.350% 4.497% 09/15/2008 09/18/2008 9 11/20/2008 1,000 3,515 1,001 0 47 1,048 3.51 4.289% 4.440% 09/15/2008 09/18/2008 12 12/11/2008 2,800 6,691 2,805 0 200 3,005 2.39 4.273% 4.417% 09/15/2008 09/18/2008 23 02/26/2009 2,000 4,731 2,004 0 125 2,129 2.36 4.253% 4.376% 09/22/2008 09/25/2008 5 10/30/2008 1,000 6,069 1,003 0 124 1,127 6.05 4.161% 4.312% 09/22/2008 09/25/2008 13 12/24/2008 3,000 11,275 3,002 0 361 3,363 3.76 4.191% 4.330% 09/22/2008 09/25/2008 18 01/29/2009 1,500 6,955 1,502 0 183 1,685 4.63 4.185% 4.314% 09/29/2008 10/02/2008 12 12/24/2008 3,000 10,917 3,003 0 427 3,430 3.64 3.421% 3.525% 09/29/2008 10/02/2008 25 03/26/2009 2,500 8,394 2,500 0 358 2,858 3.36 3.715% 3.804% 09/29/2008 10/02/2008 51 09/24/2009 2,500 7,658 2,501 0 320 2,821 3.06 3.703% 3.756% 10/06/2008 10/09/2008 8 12/04/2008 1,500 6,642 1,500 0 179 1,679 4.43 2.576% 2.648% 10/06/2008 10/09/2008 13 01/08/2009 3,000 12,140 3,003 0 434 3,437 4.04 2.786% 2.863% 10/06/2008 10/09/2008 24 03/26/2009 2,500 5,553 2,503 0 363 2,866 2.22 2.839% 2.901% 10/06/2008 10/09/2008 46 08/27/2009 2,000 5,445 2,005 0 275 2,280 2.72 3.058% 3.106% 10/13/2008 10/16/2008 9 12/18/2008 1,000 4,369 1,002 0 6 1,008 4.36 2.226% 2.284% 10/13/2008 10/16/2008 12 01/08/2009 3,000 7,058 3,004 0 20 3,024 2.35 2.269% 2.327% 10/13/2008 10/16/2008 17 02/12/2009 2,000 5,407 2,003 0 82 2,085 2.70 2.571% 2.637% 10/13/2008 10/16/2008 49 09/24/2009 2,000 5,160 2,001 0 0 2,001 2.58 2.819% 2.861% 10/20/2008 10/23/2008 10 12/31/2008 2,000 3,717 2,002 0 50 2,052 1.86 2.928% 3.013% 10/20/2008 10/23/2008 13 01/22/2009 3,000 6,172 3,003 0 72 3,075 2.06 2.783% 2.860% 10/20/2008 10/23/2008 26 04/23/2009 2,000 3,893 2,002 0 8 2,010 1.94 2.931% 2.994% 10/27/2008 10/30/2008 12 01/22/2009 3,000 7,477 3,003 0 254 3,257 2.49 2.847% 2.927% 10/27/2008 10/30/2008 19 03/12/2009 1,500 3,335 1,501 0 99 1,600 2.22 2.891% 2.959% 10/27/2008 10/30/2008 25 04/23/2009 1,500 4,630 1,501 0 32 1,533 3.08 2.861% 2.923% 11/03/2008 11/06/2008 10 01/15/2009 1,000 4,653 1,000 0 98 1,098 4.65 2.751% 2.829% 11/03/2008 11/06/2008 13 02/05/2009 3,000 7,360 3,005 0 315 3,320 2.45 2.820% 2.898% 11/03/2008 11/06/2008 16 02/26/2009 1,500 4,287 1,503 0 96 1,599 2.85 2.796% 2.871%


Total amount issued 317,141

O/w a few days 2,6241-2 months 42,0263 months 167,0206 months 53,4571 year 52,014

Auction date settlement date Term (weeks) Maturity date Amount offered Amount asked Amount served o/w ncTs

before auctionsncTs after

auctionsTotal amount

issuedBid-to-cover

ratioweighted

average price Yield to maturity

11/10/2008 11/13/2008 12 02/05/2009 3,000 8,023 3,000 0 327 3,327 2.67 2.718% 2.793% 11/10/2008 11/13/2008 19 03/26/2009 1,000 4,490 1,002 0 114 1,116 4.48 2.677% 2.738% 11/10/2008 11/13/2008 23 04/23/2009 2,000 5,033 2,001 0 221 2,222 2.52 2.650% 2.707% 11/17/2008 11/20/2008 13 02/19/2009 3,000 8,330 3,004 0 253 3,257 2.77 2.446% 2.510% 11/17/2008 11/20/2008 16 03/12/2009 1,000 3,680 1,000 0 84 1,084 3.68 2.436% 2.491% 11/17/2008 11/20/2008 20 04/09/2009 2,000 3,723 2,003 0 175 2,178 1.86 2.397% 2.449% 11/24/2008 11/27/2008 12 02/19/2009 3,000 8,878 3,000 0 359 3,359 2.96 2.185% 2.246% 11/24/2008 11/27/2008 21 04/23/2009 1,000 3,354 1,002 0 0 1,002 3.35 2.098% 2.141% 11/24/2008 11/27/2008 25 05/20/2009 2,000 4,360 2,004 0 0 2,004 2.18 2.115% 2.156% 12/01/2008 12/04/2008 10 02/12/2009 1,500 4,830 1,500 0 180 1,680 3.22 2.133% 2.188% 12/01/2008 12/04/2008 13 03/05/2009 3,500 10,190 3,503 0 291 3,794 2.91 2.081% 2.127% 12/01/2008 12/04/2008 18 04/09/2009 1,000 4,273 1,001 0 81 1,082 4.27 2.084% 2.128% 12/01/2008 12/04/2008 50 11/19/2009 1,500 4,495 1,500 0 111 1,611 3.00 1.995% 2.024% 12/08/2008 12/11/2008 10 02/19/2009 1,500 3,980 1,500 0 76 1,576 2.65 2.043% 2.095% 12/08/2008 12/11/2008 12 03/05/2009 3,500 7,259 3,504 0 167 3,671 2.07 2.039% 2.084% 12/08/2008 12/11/2008 21 05/07/2009 1,500 3,630 1,502 0 2 1,504 2.42 2.042% 2.083% 12/15/2008 12/18/2008 10 02/26/2009 2,000 4,340 2,002 0 244 2,246 2.17 1.978% 2.031% 12/15/2008 12/18/2008 13 03/19/2009 3,000 8,623 3,002 0 363 3,365 2.87 1.939% 1.991% 12/15/2008 12/18/2008 22 05/20/2009 1,500 2,790 1,502 0 186 1,688 1.86 2.026% 2.081% 12/15/2008 12/18/2008 48 11/19/2009 1,000 2,630 1,000 0 128 1,128 2.63 2.015% 2.070% 12/22/2008 12/24/2008 12 03/19/2009 3,500 6,446 3,503 0 263 3,766 1.84 1.724% 1.760% 12/22/2008 12/24/2008 19 05/07/2009 1,000 2,705 1,002 0 24 1,026 2.70 1.766% 1.801% 12/22/2008 12/24/2008 23 06/04/2009 1,500 2,822 1,501 0 66 1,567 1.88 1.787% 1.821% 12/22/2008 12/24/2008 47 11/19/2009 1,000 2,045 1,002 0 44 1,046 2.04 1.811% 1.838%

79

Financial Review


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ANNUAL REPORT2008

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2008 - Agence France Trésor - AFTC3BAF1F0-F068-4305-821D-B8B2BF4F9A… · in 2008 9,802 transactions ... NET COST OF DEBT Outturn 2007 Outturn 2008 2009 Supplementary Budget Act