Bertrand de Mazières, head of the Agence France Trésor in Paris, is looking at issuing its first non-euro denominated debt and restarting its interest rate swap program. He laid out his thoughts in an exclusive interview with DW last week.
Until last year the French treasury, which has some EUR812 billion in outstanding debt, was not allowed to issue in any other currency, partly because of a disastrous bond issue after World War I when the franc steadily depreciated against the dollar and the costs spiralled. The path is now clear for a non-euro debt issue and de Mazières is considering his options. What is certain, however, is that if it does issue a non-euro denominated bond it would enter a foreign exchange swap to convert the issue to euros.
The decision is likely to be driven by investor demand, and de Mazières said investors are still undecided about whether they want such an issue. Any foreign currency debt would also have to fit with the agency's funding philosophy. For example, it has made a commitment to issue only liquid bonds so de Mazières has almost ruled out a one-off foreign currency issue. Rather, it would have to be a new benchmark issue.
The advent of the euro, however, has removed much of the need to diversify its investor base. Before the launch of the euro de Mazières readily accepted that most of its investors were based in France, whereas now over 40% of its debt is held outside France.
The French treasury, which was the trailblazer among European sovereigns using interest rate swaps to tailor the duration of debt, built up a EUR61 billion swaps book over the last couple of years before pulling out of the market last year, but de Mazières insists, "Our program is suspended, not cancelled." It will return to the market when its criteria regarding volatility of interest rates, their absolute levels and the shape of the curve are met. "We don't tinker with this model," he added.