Agence France Trésor Sébastien BOITREAUD Deputy Chief Executive

Agence France Trésor Sébastien BOITREAUD, Deputy Chief Executive, Agence. France Trésor Europlace Stockholm – 29 March 2007

v AFT Funding Strategy v Focus on Inflation-linked Bonds

2007 Funding Requirement and Sources Funding requirement in €bn 2007 Long-term debt redemption 31. 9 Medium-term debt redemption 37. 2 Budget deficit 42. 0 Total financing requirement 111. 0 Funding sources in €bn Medium- and long-term issuance (OAT/BTAN) net of buybacks 2007 102. 5 Cancellation of State Securities by the CDP 8. 1 Net change in T-bills (BTF) 24. 5 Change in Treasury correspondents’ deposits -8. 4 Change in the Treasury account -15. 9 Total financing sources 111. 0

AFT Mandate and Strategy • Agence France Trésor manages central government debt and cash under the most secure conditions in the best interest of the taxpayer. • In order to minimise debt costs over time, AFT sets priority to stability and predictability. AFT does not aim at beating the market through opportunistic transactions. • AFT seeks the highest liquidity standard, is committed to transparency, and aims at relevance and innovation in the management of the French Republic debt.

OATs and BTANs Outstanding as of 28 February, 2007

Sustained Interest from Non-French Investors Round 24. 2% of non euro holdings, end of 2004, CPIS IMF Source: Banque de France

v AFT Funding Strategy v Focus on Inflation-linked Bonds

A Structural Demand Index-linked bonds provide: • Ability to invest on a real-yield basis • Diversification for portfolio managers – Improved efficient frontier – Good performance record • Better asset and liability matching – Evolution of regulatory and accounting framework will increase demand • Market expectations of future inflation, through inflation break-evens – Valuable indicators for central banks

Why Issue Inflation-Linked Bonds? • Optimizing the State’s Balance Sheet – Asset-liability management: Revenues are correlated with inflation, directly or indirectly – Budget smoothing: Inflation is negatively correlated with fiscal deficits • Providing a Public Good – Expanding the hedging opportunities of private agents – Providing policymakers with a market measure of expected inflation • Is it Cost-Efficient? – In an efficient market, – Diversification of the inflation is fairly priced and nominal and real State’s liability portfolio bonds are equivalent Theoretical studies to support these assertions (see next page) • Meeting Strong Demand – And diversifying the – Additionally, the inflationrisk premium is eliminated

A Risk Management Framework for Government Debt Strategies: Results • with cost measure = average debt cost : classic cost-risk curve, i. e. issuance of ILBs decreases cost but increases volatility of debt interest cost • with cost measure = average fiscal balance : Ushaped cost-risk curve, i. e. there exists an optimum in inflation share of the debt portfolio. Depending on parameters, optimum varies between 10% and 20%.

Building the Real Curve • 1998: linker • 1999: • 2001: 10 yr French Linker OATi 2009 First ever euro-denominated • 2005: • 2006: • 2007: 30 yr French Linker OATi 2029 10 yr Euro Linker OAT€i 2012 First euro-zone linker 30 yr Euro Linker OAT€i 2032 10 yr French Linker OATi 2013 15 yr Euro Linker OAT€i 2020 7 yr French Linker OATi 2011 10 yr Euro Linker OAT€i 2015 10 yr French Linker OATi 2017 5 yr Euro Linker BTAN€i 2010 30 yr Euro Linker OAT€i 2040 • N. B. 2003: 22 yr Greek linker, 5 yr Italian linker • 2002: • 2003: • 2004:

Key Figures for French Index-Linked Bonds Face value as of 23 March 2007: • French Inflation (OATi): – OATi 3% 2009: – OATi 1. 6% 2011: – OATi 2. 5% 2013: – OATi 1% 2017: – OATi 3. 4% 2029: • Euro Area Inflation (OAT€i): € 54. 0 bn – BTAN€i 1. 25% 2010: € 5. 8 bn – OAT€i 3% 2012: € 14. 5 bn – OAT€i 1. 6% 2015: € 10. 0 bn – OAT€i 2. 25% 2020: € 11. 0 bn – OAT€i 3. 15% 2032: € 8. 7 bn – OAT€I 1. 80% 2040: € 4. 0 bn € 56. 4 bn € 13. 8 bn € 11. 0 bn € 13. 9 bn € 11. 2 bn € 6. 4 bn Total (inflated) as of 28 February 2007: € 114 bn – 12. 6% of Total Marketable Debt – 13. 6% of Medium- and Long-Term Debt (OATs and BTANs)

AFT Commitments Regarding ILBs • Regularity: Monthly issuance since 2004 (excluding August and December) • Predictability: ILB auction on 3 rd Thursday of the month, 11: 50 am, Paris time • Relevance: AFT is committed to issuing at least 10% of its financing program in linkers and significantly more if justified by demand (17. 5% in 2006) • Ensuring liquidity through primary issuance and through primary dealers’ market making • Building two real curves: French & European inflation, and ensuring their liquidity

A Sustained Demand … €bn Volumes Bid and Served at OATi/€i Auctions

… for both OATis and OAT€is Volumes issued €m

Foreign Holdings of OATi and OAT€i 2002 2003 2004 2005 2006 Q 2 OATi 31. 9% 31% 37. 2% 44. 1% 47. 3% OAT€i 56. 3% 64. 1% 69. 1% 73. 5% 69. 5% OAT 34. 2% 39% 40. 6% 49. 7% 50. 9% Notes and bonds 41. 9% 47. 3% 49. 1% 56. 5% 57. 9% Source: Banque de France

Turnover on ILBs: OATi & OAT€i Total Turnover (buy+sell) 2004 Source AFT, based on monthly reporting by primary dealers – 2005 2004 Net buyer over 2004 - 2005 Net seller over 2004 – 2005

Strong Liquidity in Index-linked Government Bonds Market Turnover in French Government Inflation-Linked Bonds (in € bn per month) OATei-15 OATi-17 BTANei-10 OATi-11 OATi-13 OATei-32 OATi-29 Source: AFT OATei-12 OATei-20

Comparable Turnover in TIPS and French ILBs Trading Turnover of French Government Inflation-Linked Bonds Weekly Trading Volume Relative to Outstanding Debt 18% 16% 14% 12% 10% 8% Total 6% 4% 2% Source: NY Fed 0% 1998 1999 2000 2001 2002 2003 2004 2005: Monthly average trading volume relative to outstanding debt: Total debt: 37, 3% Inflation-linked bonds: 49, 03% Source: AFT

More Information on… www. aft. gouv. fr Reuters: <TRESOR> Bloomberg: TRESOR <GO>

21 Stockholm, Thursday, March 29, 2007 Paris, Gateway to Euro Capital Markets