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By Raoul Sachs
PARIS, March 4 (Reuters) - France will increase issuance of medium- to long-term debt to 155 billion euros ($194.3 billion) in 2009, some 10 billion euros above its most recent projection, the head of the French debt management agency said on Wednesday.
Agence France Tresor head Philippe Mills also told Reuters that 7 billion euros would be added to net outstanding T-bills to fill a wider-than-expected budget deficit of 103.8 billion euros, against the most recent projection of 86.8 billion.
Mills' comments came after Economy Minister Christine Lagarde unveiled updated growth and budget forecasts projecting a 1.5 percent contraction in French gross domestic product in 2009 with the budget deficit reaching 5.6 percent of GDP.
He said the distribution of the issuance along the maturity curve had been taken with an eye on the market's capacity to absorb the new debt as well as on financing conditions.
Despite the flood of new government debt issues on the market, Mills said he was confident the extra issuance would not run into any problems.
"We're particularly confident because our growth and deficit forecasts, as far as they affect issuance are in line with those of market economists," he said, noting average estimates of 150-160 billion euros in medium and long term issues.
"The primary dealers were expecting us to issue more in 2009 because they were expecting public sector deficits above what the government was expecting until today," he said. "So we have come back to the average of market expectations."
He also dismissed fears that the extra 7 billion euros in short term T-bills risked flooding the market, noting that the extra volume would mean only an average of 150-200 million euros added to the 44 weekly auctions left this year.
"Current conditions for T-bills are very favourable because we keep beating historical records every auction," he said.
Mills said interest rates were low right along the maturity curve with average rates for two year debt at 1.7 percent against a long term average of 3.5 percent and rates for 10 year debt at 3.75 percent against a long-term average of 4.5 percent.
"In all maturities, rates are historically low and that's even truer of short-term maturities, i.e. T-bills," he said. (Reporting by Raoul Sachs; Writing by James Mackenzie; Editing by Ron Askew)