General debt-related data. page 3

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1 MonthlyBulletin n M a y Publication manager: Anthony Requin Editor: Agence France Trésor Available in Arabic, Chinese, English, French, Japanese, Russian and Spanish Bloomberg TREX<GO> Reuters <TRESOR> News at Agence France Trésor page 1 Economic news page 2 General debt-related data page 3 Secondary market page 5 Negotiable government debt page 6 The French economy and international comparisons page 8 Agence France Trésor is tasked with managing the government debt and cash positions under the most secure conditions in the interest of the taxpayer. News at Agence France Trésor AFT is prepared for the French government's decision to take on railway debt On 25 May 218, Prime Minister Édouard Philippe announced that as part of the railway reform currently being debated in the French Parliament, the State would take on 35bn of debt held by French railway operator SNCF Réseau. This debt will be transferred in two stages: 25bn in 22, followed by 1bn in 222. These transactions will unburden SNCF Réseau's financial structure quite substantially, reducing SNCF Réseau's financial expenses by more than 1bn p.a. Together with improved operating performance in the SNCF group, this debt transfer will bring the company back to financial break-even in 222. While debt capital repayment and related interest payments will have an impact on the State s debt issuance, this impact will be absorbed by the market. The SNCF's debt maturity schedule (see chart below) remains unchanged, so the additional borrowing requirement for the State will be spread over time. Moreover, additional debt redemptions will be much smaller than the French government financing programme and will come at a time when the reforms enacted to restore public finances have reduced deficits and therefore lowered borrowing requirements. 4bn Debt maturity schedule for SNCF Réseau 3bn 2bn 1bn bn Source: SNCF By way of comparison, a previous transfer of 8bn in railway debt to the special debt account (SAAD) did not result in a significant increase in debt issuance. Of this debt, an average of 1.1bn p.a. was refinanced over , with 1.4bn still to mature (maturities in 22 and 223). 1

2 Economic news ECB preparing the next normalization step Adam Kurpiel, Head of Rates Strategy, Société Générale CIB The ECB s net asset purchases are intended to run at the monthly pace of 3bn until the end of September 218 at least. The ECB will have to decide this summer what to do next, possibly already at the upcoming 14 June meeting. New ECB inflation forecasts are unlikely to be improved in June. The euro area core inflation will move above 1% likely in October only. This strengthens the case for an extension of net asset purchases, but also increases the risk of all details being announced at the 26 July meeting. At current low volumes, ECB purchases play essentially a signaling role, as the ECB expects its key interest rates to remain at their present levels well past the horizon of net asset purchases. Recent ECB talk suggests that well past means at least some quarters, but not years. An extension of purchases beyond September would be aimed at preventing the market from expecting rate hikes too soon. The market expects currently roughly 3 basis points (bp) hikes in 219, with the first 2bp hike almost 1% priced for September 219. The ECB has significant room for policy normalization. Short maturity real rates are at historical lows and have rarely been so low vs natural interest rate estimates. Higher real rates because of falling inflation expectations were an issue for the ECB in late 214 and motivated the decision to start asset purchases. The opposite is true now. Historically low real rates mean ECB stance is strongly accommodative pp restrictive ECB stance accomodative ECB stance EUR 2y OIS real rate minus EA r* Source: SG Cross Asset Research/Rates; Holston, Laubach, and Williams, The negative effect of ECB asset purchases on the EUR term premium is likely to decline gradually because of what is referred to as the portfolio ageing effect. Recent ECB s calculations suggest a 1bp/year increase in the EUR 1y term premium. This implicitly assumes that re-investments of the proceeds from principal payments of the maturing securities would not completely offset the endogenous decay of the average portfolio duration. A faster increase in rates would require a hawkish adjustment of ECB s rate expectations. By accompanying the inevitable end of net asset purchases, the ECB will have to stress the forward guidance on rates, and may be tempted to exaggerate its dovish stance, thereby anchoring the short maturity rates relative to longer maturities. This implies a bias for steeper 2-5y and 2-1y OAT curves if rates increase. Typically, yield curve bear-flattens ahead of a new rate hiking cycle. This time, because of extremely prudent ECB policy normalization, the flattening of 2-5y and 2-1y segments may be delayed, even if 1-3y and 5-1y segments are at risk of bear-flattening if rates increase accelerates. Indeed, at this stage of the cycle, the 5y maturity remains the most exposed to potential bearish forces. This is especially true in the context of solid economic growth and given the ECB wants to remain reactive rather than proactive, which feeds expectations of stronger policy normalization later rather than sooner. Société Générale CIB Disclaimer: the information herein is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities and has been obtained from, or is based upon, sources believed to be reliable but is not guaranteed as to accuracy or completeness. Material contained in this report satisfies the regulatory provisions concerning as marketing material as defined in MiFID and should not be treated as a research report issued by Societe Generale s independent Research department. Information concerning conflicts of interest and SG s management of such conflicts is contained in the SG s Policies for Managing Conflicts of Interests in Connection with Investment Research which is available at compliance. NB: this Agence France Trésor forum offers economists an opportunity to express their personal opinion. Thus, the above article strictly reflects the author s view, and should not be construed as expressing the viewpoints of Agence France Trésor or the Ministry of the Economy and Finance. 2

3 General debt-related data Indicative auction schedule Short-term Medium-term Long-term Index-linked June 218 auction date / settlement date / July 218 auction date settlement date August Medium- and long-term negotiable government debt at 3 April 218 Medium- and long-term: securities issued during the year and total issuance at 3 April 218 Nominal value of each line, in billion OAT 2/221 OAT i 3/221 OAT 5/221 OAT 3/223 OATi 7/223 OAT 5/224 OAT i 7/224 OAT 11/224 OATi 3/225 OAT 5/225 OAT 1/225 OAT 5/226 OAT i 7/227 OATi 3/228 OAT 5/228 OAT i 7/23 OAT 5/234 OAT 5/236 OAT 7/236 OAT 6/239 OAT i 7/24 OAT 4/241 OAT i 7/247 OAT 5/248 OAT 5/ issued before 218 issued in 218 Issuance net of buybacks at 3 April Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Medium- and long-term: provisional maturity schedule at 3 April 218 Month Coupon Redemption May Jun-18.2 Jul Aug-18 Sep-18 Oct Nov Dec-18 Jan-19 Feb Mar-19. Apr

4 12/29 12/21 12/211 12/212 12/213 12/214 12/215** 3/216** 6/216** 9/216** 12/216* 3/217* 6/217** 9/217** 12/217** General debt-related data Non-resident holders of negotiable government debt in fourth quarter of 217 As a % of negotiable debt outstanding expressed in market value Negotiable government debt by group of holders in fourth quarter of 217 Structure in % expressed in market value non-resident investors French insurance companies French credit institutions French UCITS 55.1 others (French) (*) figures quarterly revised (**) figures annually revised Source: Banque de France Source: Banque de France Negotiable government debt at 3 April 218 In euros Total medium- and long-term debt 1,584,379,218,5 Total stripping activity 62,937,134,7 Average maturity 8 years and 191 days Total short-term debt 134,26,, Average maturity 16 days TOTAL OUTSTANDING 1,718,45,218,5 Average maturity 7 years and 322 days Negotiable government debt since 215 at 3 April 218 End 215 End 216 End 217 End March 218 End April 218 Negotiable government debt outstanding 1,576 1,621 1,686 1,725 1,718 of which index-linked securities Medium- and long-term 1,424 1,487 1,56 1,59 1,584 short-term Average maturity of the negotiable debt 7 years 7 years 7 years 7 years 7 years 47 days 195 days 296 days 288 days 322 days 4

5 3/16 4/16 5/16 6/16 7/16 8/16 9/16 1/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 1/17 11/17 12/17 1/18 2/18 3/18 Secondary market Yield curve for French government securities End-of-month value, % 4 3 Average daily volume of medium- and long-term transactions yr 5 y rs 1 y rs 2 y rs 3 y rs 5 y rs Source: Bloomberg 4/216 4/217 4/218 Source: reporting by primary dealers in government securities, excluding flows arising from the Eurosystem public sector purchase programme Total stripping and reconstitution reconstitution stripping strips outstanding (->) Source: Euroclear Primary dealers, repo outstanding at end of month Fixed-rate Floating-rate Others 3/16 4/16 5/16 6/16 7/16 8/16 9/16 1/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 1/17 11/17 12/17 1/18 2/18 3/18 Source: reporting by primary dealers in government securities 5

6 Negotiable government debt Short-term debt at 3 April 218 Maturity Outstanding ( ) BTF 3 May 218 6,377,, BTF 9 May 218 5,682,, BTF 16 May 218 6,814,, BTF 24 May 218 6,928,, BTF 3 May 218 7,794,, BTF 13 June 218 8,24,, BTF 2 June 218 9,282,, BTF 27 June 218 6,995,, BTF 4 July 218 6,333,, BTF 11 July 218 7,38,, BTF 18 July 218 3,632,, BTF 25 July 218 3,698,, BTF 1 August 218 7,636,, BTF 15 August 218 4,89,, BTF 29 August 218 5,228,, BTF 12 September 218 1,947,, BTF 26 September 218 2,518,, BTF 1 October 218 4,734,, BTF 7 November 218 4,847,, BTF 5 December 218 2,175,, BTF 4 January 219 5,257,, BTF 3 January 219 6,145,, BTF 27 February 219 5,54,, BTF 27 March 219 4,755,, Medium- and long-term debt (maturing ) at 3 April 218 ISIN Code Bond Outstanding ( ) Ind. Coeff. Face value Stripped ( ) Maturity ,397,239,5 FR OAT 1.% 25 May 218* 18,191,, FR OAT i.25% 25 July 218 9,749,239,5 (1) ,223,5, FR OAT 4.25% 25 October ,527,, FR OAT 1.% 25 November 218* 19,93,, 2,, Maturity ,18,583,959 FR OAT.% 25 February 219* 1,88,, FR OAT 4.25% 25 April 219 3,198,, FR11788 OAT 1.% 25 May 219* 16,88,, FR18532 OATi 1.3% 25 July ,724,516,4 (1) ,74,, FR57921 OAT 8.5% 25 October 219 8,844,392,893 5,596,585,1 FR OAT 3.75% 25 October ,75,, FR OAT.5% 25 November 219* 22,377,, 5,, FR57954 OAT cap. 9.82% 31 December ,674,666 (2) 6,692,154 Maturity ,657,71,3 FR OAT.% 25 February 22* 24,29,, FR OAT 3.5% 25 April 22 38,946,, FR OAT.% 25 May 22* 22,969,, FR15559 OAT i 2.25% 25 July 22 25,189,71,3 (1) ,31,, FR OAT 2.5% 25 October 22 36,562,, FR OAT.25% 25 November 22* 24,782,, Maturity ,415,954,36 FR OAT.% 25 February 221* 11,631,, FR OAT i.1% 1 March 221* 7,31,566,36 (1) ,916,, FR OAT 3.75% 25 April ,352,, FR OAT.% 25 May 221* 29,54,, FR OATi.1% 25 July 221 8,6,388, (1) ,8,, FR OAT 3.25% 25 October ,891,, (1) face value x indexation coefficient (face value if coefficient < 1) (2) Including coupons capitalised at 31 December 217; not open to subscription * Like all euro area bonds, the bonds issued after 1 January 213 have collective action clauses (CACs), which means that they are not fungible with bonds issued prior to this date. 6

7 Negotiable government debt Medium- and long-term debt (maturing in 222 and beyond) at 3 April 218 ISIN Code Bond Outstanding ( ) Ind. Coeff. Face value Stripped ( ) Maturity ,92,2,36 FR57144 OAT 8.25% 25 April 222 1,243,939,99 58,888,4 FR OAT 3.% 25 April ,359,, FR OAT.% 25 May 222* 25,15,, FR OAT i 1.1% 25 July ,767,26,37 (1) ,929,, FR OAT 2.25% 25 October ,445,, Maturity ,819,542,453 FR OAT.% 25 March 223* 22,742,, FR57185 OAT 8.5% 25 April 223 1,66,195,93 5,373,565,2 FR OAT 1.75% 25 May 223* 35,237,, FR OATi 2.1% 25 July ,316,346,55 (1) ,45,, FR OAT 4.25% 25 October ,918,, 431,85, Maturity ,526,942,49 FR OAT 2.25% 25 May 224* 34,81,, FR OAT i.25% 25 July 224* 16,691,942,49 (1) ,167,, FR OAT 1.75% 25 November 224* 37,25,, 51,, Maturity ,952,25,218 FR OATi.1% 1 March 225* 9,895,97,1 (1) ,723,, FR OAT.5% 25 May 225* 36,156,, FR57115 OAT 6.% 25 October ,593,928,118 2,858,64,4 FR OAT 1.% 25 November 225* 28,37,, Maturity ,54,, FR OAT 3.5% 25 April ,814,, FR OAT.5% 25 May 226* 29,476,, FR OAT.25% 25 November 226* 3,214,, Maturity ,563,44,5 FR OAT 1.% 25 May 227* 31,451,, FR11875 OAT i 1.85% 25 July ,658,44,5 (1) ,93,, FR OAT 2.75% 25 October ,454,, 59,43,6 Maturity ,996,319,614 FR OATi.1% 1 March 228* 6,395,72, (1) ,295,, FR OAT zero coupon 28 March ,599,614 (3) 46,232,63 FR OAT.75% 25 May 228* 28,574,, Maturity ,15,96,966 FR OAT 5.5% 25 April 229 3,33,88,458 2,978,546,1 FR OATi 3.4% 25 July ,117,8,58 (1) ,734,144, Maturity 23 44,289,761,6 FR OAT 2.5% 25 May 23* 33,28,, FR OAT i.7% 25 July 23* 11,81,761,6 (1) ,873,, Maturity ,834,, FR OAT 1.5% 25 May 231* 35,834,, 66,5, Maturity ,463,539,45 FR OAT i 3.15% 25 July ,31,216,85 (1) ,585,, FR OAT 5.75% 25 October ,162,322,6 11,337,657,4 Maturity 233 and later 232,87,32,73 FR OAT 1.25% 25 Mai 234* 4,41,, FR176 OAT 4.75% 25 April ,678,, 4,927,337, FR OAT 1.25% 25 May 236* 24,283,, FR OAT i.1% 25 July 236* 3,5,, (1) ,5,, FR OAT 4.% 25 October ,534,, 4,821,931,4 FR OAT 1.75% 25 June 239* 1,793,, FR OAT i 1.8% 25 July 24 13,96,546,94 (1) ,947,, FR OAT 4.5% 25 April ,67,, 7,166,499, FR OAT 3.25% 25 May 245* 24,98,, 1,145,71, FR OAT i.1% 25 July 247* 7,365,485,79 (1) ,261,, FR OAT 2.% 25 May 248* 19,743,, 675,, FR OAT 4.% 25 April ,926,, 7,729,118, FR OAT 4.% 25 April 26 13,55,, 6,948,54,1 FR OAT 1.75% 25 May 266* 9,17,, 237,1, (1) face value x indexation coefficient (face value if coefficient < 1) (3) Revised on 28 March 218; not open to subscription * Like all euro area bonds, the bonds issued after 1 January 213 have collective action clauses (CACs), which means that they are not fungible with bonds issued prior to this date. 7

8 The French economy and international comparisons Most recent economic indicators Industrial output, year-on-year 1.8% Mar. 218 Household consumption*, year-on-year * manufactured products Sources: Insee, Minefi, Banque de France.8% Apr. 218 Unemployment rate (ILO) 9.2% Q1-218 Consumer prices, year-on-year all items 1.6% Apr. 218 all items excluding tobacco 1.3% Apr. 218 Trade balance, fob-fob, sa ( bn) - 5.3bn Mar. 218 " " - 5.bn Feb. 218 Current account balance, sa ( bn) - 1.3bn Mar. 218 " " -.9bn Feb year constant maturity rate (TEC1).68% 3 May month interest rate (Euribor) -.32% 3 May 218 EUR / USD May 218 EUR / JPY May 218 Monthly government budget position General budget balance Source: Minefi revenue expenditure Balance of special Treasury accounts General budget outturn end of March level Public finances: deficit and debt As % of GDP Source: Insee deficit (left-hand scale) debt (right-hand scale) debt including impact of European guarantees General government debt in 217 As % of GDP Sources: Eurostat, IMF, Insee 8

9 The French economy and international comparisons French economic indicators: timetable June 218 July Foreign trade by value in April Balance of payments in May 4 Balance of payments in April Foreign trade by value in May 4 Industrial production: April index Industrial production: May index 9 Payroll employment: Q1-218 Consumer prices: June index 15 Consumer prices: May index Net international reserves in June 15 Net international reserves in May Inflation (HICP): June index 15 Inflation (HICP): May index 16 Monthly business survey (goods-producing industries) in June Quarterly national accounts: final results Q1-218 Quarterly business survey (goods-producing industries) in July Monthly business survey (goods-producing industries) in July Industrial producer and import price: June indices Consumer confidence survey: June survey Consumer confidence survey: July survey Housing starts in May Quarterly national accounts: initial estimate Q2-218 Debt of the general government according to Maastricht definition Q1 218 Industrial producer and import price: May indices Household consumption expenditure on goods in June Housing starts in June Household consumption expenditure on goods in May Sources: Insee, Eurostat Agence France Trésor is launching its first corporate video! In two and a half minutes, get to know AFT, the agency that manages France's government debt and cash requirements in the best interests of taxpayers and with maximum security. Discover AFT's duties, its team members and its values. Watch the video This publication, which is the exclusive property of AFT, is entirely protected by the provisions of the French Intellectual Property Code, particularly those provisions relating to copyright. Any reproduction of the content, in whole or in part, by any means whatsoever, without the permission of AFT, is strictly prohibited. As a result, the permission of the rights holder must be sought for any reproduction of the content exclusively for non-commercial purposes. Requests for permission must be submitted via to AFT's Publication Director at the following address: "contact@aft.gouv.fr". Reuse of information must mention the source and the date of the reproduction, and must feature the copyright notice " Agence France Trésor". English translation: Centre de traduction des ministères économiques et financiers 9