ECONOMIC AND FINANCIAL COMMITTEE

Brussels, 23 October 2000 EFC/ECFIN/666/00- En

Progress report on EU government Bond instruments

1- At its 17 May 2000 meeting, the ad-hoc group of the Economic and Financial Committee decided to prepare a report on government bond instruments and retail instruments. 2- Table 1 presents the share of national currency denominated bonds by type of instruments for each Member State. Table 2 describes the characteristics of the main instrument in each Member State. Table 3 gives some information on the retail instruments existing in some Member States. 3- The main findings of these tables are following :

- The characteristics (tables 1 and 2) of the bond issues in the EU Member States of the bond issues in the EU Member States register a great degree of similarity : * the fixed rate bond issues represent between 47 and 100% of total debt issuance, and more than 90% in 9 member States; * the floating rate issues are very limited, or do not exist anymore, except in 4 Member States, when it represents between 8 and 36% of the national currency denominated bonds ; * CPI-index issues exist in three Member States. - In all Member States, new issued bonds are plain vanilla security issued in fungible tranches. The maturity of bond issued is between 2 and 50 years, but the most important benchmarks are 5 and 10 years. -Retail instruments are issued in a majority of Member States, and are the most often specific instruments issued through specific placement channels, available to the large public (Table 3). They represent between 1 and 20% of total debt.

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Annex 1 : Characteristics of Government Bond instruments Current situation in EU Member States

Austria The main bond instrument uses in Austria is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 58% of the total debt. The main benchmarks on bonds markets are 5 and 10 years. Austria does not issue any specific retail instrument. Belgium The main bond instrument uses in Belgium is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 64% of the total debt. The main benchmarks on bonds markets are 5, 10 and 30 years. Belgium issues also specific retail instruments, whose placement is ensured by a consortium of financial institutions. Denmark The main bond instrument used in Denmark is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 98% of the total debt. The main benchmarks on bonds markets are 2, 5 and 10 years. In Denmark, there is no specific retail instrument. Finland The main bond instrument used in Finland is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 63% of the total debt. The main benchmarks on bond markets are 3,4,5,7,8 and 10 years. Belgium issues also specific retail instruments, sold be banks or directly by the State Treasury. France The main bond instrument used in France is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 95% of the total debt. The main benchmarks on Bond markets are 2, 5, 10 and 30 years. France does not issue any specific retail instrument, but sales a limited part of the OAT 10 Y and the OATi 10Y directly to the retail sector. Germany The main bond instrument used in Germany is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 77% of the total debt. The main benchmarks on bonds markets are 2, 5 and 10 years. Germany also issues specific retail instruments. Greece The main bond instrument used in Greece is a national currency plain vanilla fixed rate security auctioned in fungible tranches. It represents 61% of the total debt. The main benchmarks on Bond markets are 3, 5, 10 and 20 years. Greece issues also specific retail instruments, whose placement is ensured through public souscription. Ireland The only bond instrument used in Ireland is a national currency plain vanilla fixed rate security auctioned in fungible tranches.

The main benchmarks on Bond markets are 2, 5, 10 and 15 years. Ireland issues also specific retail instruments, sold through the Post Office. Italy The main bond instrument used in Italy is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 55 % of the total debt. The main benchmarks on Bond markets are 3, 5, 10 and 30 years. Italy issues also specific retail instruments, sold through the Post Office. Luxembourg The only bond instrument used in Luxembourg is a plain vanilla fixed rate security auctioned in fungible tranches, whose maturity is 10 years. Luxembourg does not issue any specific retail instruments.

Netherlands The main bond instrument used in the Netherlands is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 93% of the total debt. The main benchmarks on Bond markets are 3, 10 and 30 years. The Netherlands do not issue any specific retail instrument. Portugal The main bond instrument used in Portugal is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 53% of the total debt. The main benchmarks on Bond markets are 5 and 10 years. Portugal issues also specific retail instruments, whose placement is ensured by the IGCP and the Post Office. Spain The main bond instrument used in Spain is a plain vanilla fixed rate security auctioned in fungible tranches. It represents 71% of the total debt. The main benchmarks on Bond markets are 3, 5, 10, 15 and 30 years. Spain does not issue specific retail instrument, but sells a limited part of its issuance to the retain sector, through a consortium of financial institutions or directly at the Treasury. It is currently preparing a placement through internet. Sweden The main bond instrument used in Sweden is a national currency plain vanilla fixed rate security auctioned in fungible tranches. It represents 47% of the total debt. In addition, Sweden issues inflation-linked bonds which represent 9% of the total debt, as well as specific retail instruments, sold by internet, phone, through mail order or using a consortium of financial institutions. United Kingdom The main bond instrument used in the UK is a national currency plain vanilla fixed rate security auctioned in fungible tranches. It represents 60% of the total debt. The main benchmarks on Bond markets are 5, 10, 15 and 30 years. Bonds indexed to the CPI represent a further 18% of total debt while non-marketable retail instruments, sold through National Savings, make up a further 17%.

Table 1 : Share of national currency denominated bonds by type of instruments

AUSTRIA BELGIUM DENMARK FINLAND FRANCE GERMANY GREECE IRELAND ITALY LUXEMBURG NETHERLANDS PORTUGAL1 SPAIN SWEDEN UK

fixed 99 99 100 100 94.5 77,4 64 100 74 100 97.4 87.3 100 862 75

Floating 1 1

Index-linked (index)

other

4 8,5 36 26 2.6 12.7 03 1

1.5 (French CPI index) 0

14.1

14(CPI index) 23 (UK CPI index)

1 2

before swaps including retail isntruments of SEK 49 billion 3 Households products only

Table 2 : Main Bond instruments

AUSTRIA (Bearer global notes) BELGIUM (olo) DENMARK (Bullet loans) FINLAND FRANCE (OAT) GERMANY GREECE

% of Type total debt 58 Plain vanilla security auctioned in fungible tranches 64 97,9 63,4 94.5 77,4 61 Plain vanilla security auctioned in fungible tranches Plain vanilla security auctioned in fungible tranches Plain vanilla securities issued in fungible tranches Plain vanilla fixed rate security auctioned in fungible tranches Plain vanilla securities issued in fungible tranches National currency plain vanila securities auctioned in fungible tranches (reopenings) Plain vanilla type securities auctioned in fungible tranches Plain vanilla type securities auctioned in fungible tranches (BTP)

Maturity Not more than 50 years 2-30 years 2-10 years 2-10 years 2-30 years 2-30 years 2-20 years

Benchmarks Mainly 5 and 10 years 5,10, and 30 years 2,5 and 10 years 3, 4, 5, 7, 8 and 10 years 2,5,10,30 years

Coupon Fixed rate Fixed rate (15 lines)4 Floating rate (1 line)5 Fixed rate Fixed rate Fixed rate

2,5 and 10 Fixed rate years 3,5,10,20 years Fixed and floating rate 2,5,10,15 years Fixed rate 3, 5, 10, 30 years BTP 10 years 3,10,30 years Fixed rate

IRELAND ITALY6

100 54,7

2-15 years 3, 5, 10, 30 years

LUXEMBOURG NETHERLANDS

100 93

Plain vanilla fixed rate security issued by using the tap technique.

10 years 3-30 years

Fixed rate Fixed rate

4 5

Annual coupon, coupon date : March 28 or September 28 (for lines opened since 1996) quarterly coupon referenced on the 3 month Euribor 66 This percentage is referred to total of State securities, managed directly by the Treasury.

PORTUGAL SPAIN SWEDEN (Treasury Bonds) UNITED KINGDOM

52.9 70.6 47 60

Plain vanilla fixed rate security auctioned in fungible tranches Plain vanilla fixed rate security auctioned in fungible tranches National currency plain vanilla security auctioned National currency fixed coupon bonds auctioned in fungible tranches

Not more that 30 years 3-30 years 2-14 years 5-30 years

5 and 10 years 3,5,10,15 and 30 years 2-14 years 5,10 and 30 years

Fixed rate Fixed rate Fixed coupon interest rate Fixed rate (semi-annual coupon)

Table 3: Retail instruments existence NO YES NO YES YES YES YES YES specific YES type Plain vanilla or restructured Maturity 3-8 years Fixed rate instruments, maturity 2-5 years Sale of a limited part of the OAT 10 Y and the OATi 10Y Federal savings bonds and Federal Treasury financing paper Saving certificates Saving bonds Maturity of 3 to 5.5 years Fixed rate Postal saving bonds (not marketable) issuance 4 times a year ; placement using a consortium of financial institutions Selling by banks and directly from the State Treasury Placement using a consortium of financial institutions % of total debt 2%

AUSTRIA BELGIUM DENMARK FINLAND FRANCE GERMANY GREECE IRELAND

YES NO YES7 YES* YES

2,9 % 2% 7,7%

Public subscription sold through the Post Office

2% 13.3
8

ITALY LUXEMBOURG NETHERLANDS PORTUGAL SPAIN

YES NO NO YES YES

YES

sold through the Post Office

8,7

YES NO

Saving certificates

SWEDEN

YES

YES

Mainly fixed rate issues Maturity 3-15 years 54 % floating rate, 31% fixed rate, 16% index-linked

UNITED KINGDOM

YES

YES

Sold at IGCP or at any post office Placement using a consortium of financial institutions or directly to the treasury (Internet under discussion) Selling by internet, telephone, through mail order, or using a consortium of financial institutions Non Marketable government liabilities issued by National Savings

19.8%

1%

17.5%

Five-year special bonds are also sold to the retail sector for a period of six months after which they are offered to the auction group. This percentage is referred to the total of State Sector debt, which includes not only Treasury marketable debts, but all liabilities of State Sector (corresponding, more or less, to Central Government), cleaned by liquid assets. Previous percentages
8