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Treasury issues drive French liquidity

French government and state agency issues have driven France's bond markets this year, with index-linked bonds taking a healthy share. Corporate issuance has been meagre by comparison, but loan markets have been active, M&A looks set to recover and IPOs have performed well, with a solid foundation of privatization issues.

GIVEN THE BEHAVIOUR of France's capital markets so far this year, the republic's motto – liberté, égalité, fraternité – ought to be augmented by "liquidité".

"It has definitely been a year of liquidity in France," says Julian van Kan, head of European, Middle Eastern and African loan syndications and trading at BNP Paribas. Agence France Trésor (AFT), the debt management office of the French treasury, has been a dominant driver of this liquidity, with its medium- and long-term net financing programme for 2004 set to reach a record high of €122 billion, compared with €111.4 billion last year.

This year, around 20% of total issuance will be allocated to index-linked bonds, compared with 14% last year.

There was a sharp growth in the market for index-linked bonds in 2003 as French and foreign investors became more aware of their exposure to inflation risk.Index-linked is now widely considered to be an asset class in its own right, validated further last year by Greece and Italy adopting the product.

"Index-linked bonds are no longer regarded as an annexe to a nominal bond," says Bertrand de Mazières, chief executive of AFT. "They are an essential component of any diversified bond portfolio now."

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