The State issued the first OAT indexed to the French consumer price index (OATi) on 15 September 1998. This innovation was followed in October 2001 by the very first issue of an OAT indexed to the euro-area consumer price index (OAT€i).
Since then, AFT has issued inflation-indexed securities on a regular and transparent basis, thus creating two curves, one indexed to French inflation and the other to euro-area inflation. Such securities account for around 10% of AFT’s annual issuance programme.
Since 2004, OATi and OAT€i auctions are held on a regular basis on the same day as auctions for medium-term OATs, but during a separate session held at 11.50am. As of 2016, the optional August and December auctions may include issuance of index-linked securities. In this case the auction is held on the first Thursday at 11.50 am. OATi and OAT€i are designed for all types of investors looking to protect the purchasing power of their investments, improve their asset-liability management or diversify their investment portfolio. They are intended for resident or non-resident institutional investors, such as insurance companies, pension and social welfare funds, asset managers and banks, as well as retail investors.
OATi general characteristics
They have a par value of €1 and the real coupon yield is calculated as a fixed percentage of the index-linked principal. It is established at the time of issue and remains fixed to maturity. The coupon is paid annually and calculated as follows: real coupon yield × par value × indexation coefficient. The indexation coefficient is equal to the daily inflation benchmark of the day divided by the basic benchmark.
The daily benchmark is calculated by linear interpolation between the HICP for the month M-3 and the HICP for the month M-2, and the basic benchmark is the daily inflation index on the dated date (1) of the OAT at its first issue. Thus, the indexation coefficient calculates the change in the price index since the dated date. The benchmark index is the HICP, the harmonised index of consumer prices excluding tobacco for the euro area, published every month by Eurostat.
(1) The dated date for an OAT is the starting date for calculating the first coupon for the said OAT, i.e. the coupon date immediately prior to the first date of issue for the OAT in question. For example, an OAT issued for the first time on 1 April of year Y, with a coupon date of 25 May, will have a dated date of 25 May of year Y-1.
OATs are redeemed using the following formula: face value × indexation coefficient at the redemption date. If the daily inflation index at maturity is lower than the basic benchmark, the bond is redeemed at par.
A specific framework for calculating daily inflation benchmarks
AFT acts as the calculating agent for the bonds it issues. In other words, AFT is tasked with calculating indexation coefficients. AFT calculates and publishes the daily inflation benchmarks and indexation coefficients on its website.
To calculate the daily inflation benchmarks and indexation coefficients, AFT applies the same methodology to all OAT€is. This methodology is defined in the regulatory framework laid out in the order creating these securities, as published in the Official Journal. Each order stipulates that the index used to calculate the daily inflation benchmarks is “the Harmonised Index of Consumer Prices excluding tobacco for the euro area, calculated by Eurostat”, and the index used by AFT is “the first index published by Eurostat, irrespective of any possible later revisions.”
If the base changes, i.e. only in the very specific case in which the competent statistics office (Eurostat, in the case of OAT€is) decides to change the reference year for calculating the index (i.e. the HICP for the euro area), the orders creating the OAT€is stipulate that “the adjustment between two months whose indices are calculated on different bases shall be made so as not to alter the normal trajectory of the indexation coefficient.” A change in the reference year is a major statistical event, and during the most recent occurrences (in 2006 and 2016), specific information was communicated to the market (see, for instance, the press release for the new reference year 2005=100 for the euro area HICP or the Eurostat's press release for the new HICP reference year 2015=100).