Types of Bonds

Selected Euro-Zone Government Bonds

OATs - French Government Bonds

French Government Bonds are also known as OATs, (Obligations Assimilables du Trésor) which are longer term bonds. There are also BTF (Bons du Trésor à taux fixe et à intérët précompté) short-term bonds and BTANs (Bons du Trésor à taux fixe et à intérët annuel) medium term bonds with a maturity of two to five years. Agence France Trésor (ATF) is the Department of the French Finance Ministry responsible for managing public debt and the Treasury.

Some OATs are listed on Euronext. All issues trade on an over the counter basis.

Following are listed types of OATs that may be useful to retail investors.

Fixed Rate or Nominal OATs

Bond investors who want guaranteed predictable income in France may consider fixed rate or nominal OATs, which are issued for terms up to 50 years in nominal value of one Euro. OATs are repaid in a lump sum at maturity and repaid at par, i.e. at their nominal value of one Euro per bond. Interest (coupon) is paid once a year for the life of the bond. The bond is “fixed rate” -- the interest annual coupon does not vary. Maturity dates of fixed rate OATs and coupon payment dates for these bonds are either 25 April or 25 October.

Inflation-indexed or Index-linked OATS

Bond investors who want additional income in France but are also concerned about inflation (either in France or European inflation) may consider inflation-indexed or Index-linked OATs. These are fixed-rate bonds, the principal of which is at par at the time of maturity and coupons (interest) are paid annually. However, the bond is also protected against French inflation (OAT i) or European inflation (OAT Euro i) by linking the principal to a daily reference point calculated in relation to the French consumer price index (excluding tobacco) for OAT i or the harmonised price index for the Euro zone for OAT Euro i.

In this case, the coupon received by the investor, is a fixed part predetermined by the percentage of the rate applied to the principal, and a variable part that is indexed to inflation. The Agence France Trésor website gives additional detail about this indexation, rules and calculations.

Capitalisation OATs (or Zero-coupon OATs)

Bond investors who may want to start saving for longer term goals such as retirement but do not have a lot of money now may want to consider capitalisation or zero-coupon OATs. Capitalisation OATs do not pay coupon amounts, and are also known as “zero coupon” or “stripped” OATs. These are nominal fixed rate OATs which have been separated into the coupon amounts and the principal amounts. The capitalisation OAT does not have a coupon amount, only a principal amount or principal certificate. Thus the capitalisation OAT is the principal certificate. Because there is no coupon, no annual payment of interest, the zero-coupon OAT costs less than buying a nominal fixed rate OAT.


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