Formula, non
The decision by the French government last year to alter its Livret A inflation-linked savings rate formula introduced huge complexity for banks offering Livret A hedges. However, a further change this year has proven to be the last straw, forcing many dealers to pull out of the market. By John Ferry
Livret A has long been a unique part of the French inflation market. Ever since the French government included an index component in the formula for the Livret A tax-free savings rate in 2004, it has been a major driver of the inflation market, with retail banks looking to hedge the exposure created through their Livret A account offerings. Livret A is also used as a benchmark for the financing of social housing, leading to hedging demand from local authorities and real estate companies too.
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