New French 18-year inflation-linked bond issuance hits record

Agence France Trésor has processed to the launch of a new 18-year French inflation-linked bond, OAT€i 0.10% 25 July 2036.

Total demand has reached more than €11.5bn, of which €3.5bn were allocated, with a price set at €108.73. The institution pointed out this represents the most important order book collected by AFT for the launch of an OAT indexed on inflation (OAT€i).

The new bond also hit a new record low in terms of real yield at issuance for an AFT syndication, yielding -0.361% at issuance.

A hundred investors took part to the issuance, among which 24% were asset managers, insurance and pensions funds accounted for 21% and official institutions for 9 %. Banks remained largest investors (36%). The remaining 10% of investors were hedge funds.

The geographical distribution of investors was detailed as following: United Kingdom representing 37%, France 24%, other Europe 18%, other eurozone 13%, and the rest of the world 8%.

Commenting on the issuance, Jonathan Baltora, manager of the Global Inflation Short Duration Bonds strategy at AXA Investment Managers (AXA IM), said: “The issuance of the new OATei 2036 is an important step for the market as the 15 to 20 year sector on the curve is very much of interest for European pension funds that had very little liquid opportunities in this sector.

“Long term inflation hedgers have come back to the market as deflation fears have been dissipating, the supply of this new maturity on the curve is a positive response to investor demand from the French Treasury.

“We have increased our positioning on EUR and USD inflation breakevens following our quarterly fixed income forecasting session that was held in March. We believe that the upcoming move higher for core inflation between now and the end of the year should prove to be supportive of higher inflation breakevens in the market.

“Issuance of new inflation linked bonds is generally quite busy over spring and we believe that this is an opportunity to build long inflation breakeven positions. From a timing perspective, we believe that the recent increase in oil prices isn’t fully priced into the market based inflation expectations making current valuations relatively attractive in our view.”

Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is deputy editor and French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

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