The Treasury places 400 million euros between individuals in January and equalizes all of 2022

The resounding syndicated issue last Wednesday is a clear sign of the market support that the Treasury will be able to count on in its financing plan for this year, according to its general director, Álvaro López Barceló. At the start of the year, the enormous interest of individuals in acquiring Spanish sovereign debt has also become clear, especially Treasury bills given the rise in their profitability, much higher than that of any deposit. Their purchases will not be decisive for the sustainability of the debt, but the acquisition of titles by individuals through the Treasury website has skyrocketed.

As López Barceló explained in statements to Cinco Días, “in the past year through our website, individuals made requests for 400 million euros and so far in 2023, we have practically reached this figure.” To this amount should be added the requests of retailers in the offices of the Bank of Spain and in the bank offices, which amplifies the retail demand for the debt. This interest will not be a reason in any case to modify the financing plan planned for 2023, in which the objective will continue to be to avoid reducing the average life of the debt as a formula with which to guarantee its sustainability in the medium and long term.

The first syndicated issue of the year “transmits the message to us that we can continue to trust that there is demand with long maturities,” says López Barceló. In that issue, the Treasury sold $13 billion in 10-year bonds in the second largest syndicated issue in its history. It was the issue that received the most requests among those made by a European sovereign at the beginning of the year, for 86,000 million.

In an election year, the key is to continue to maintain credibility among large institutional investors. The general director of the Treasury defends that “the unanimous vision transmitted to us by international investors is one of confidence towards the Spanish economy. They are very confident in the medium and long term and in the resilience that Spain has shown in an economic context of complexity and international uncertainty”. The possible political noise before the general elections to be held this year would not be a factor against it either. “We do not appreciate concern about the elections. The budget plan for the coming years, expecting the debt to end up below 120% of GDP in 2025, shows the commitment to reducing debt. And with a very responsible fiscal trajectory ”, he adds.

Challenges and points in favor

The Treasury has already completed 14.1% of its medium- and long-term financing program for the year in January, with an issue of 32,000 million euros, including the syndicated one. But there is still a long way to go in 2023, a year in which a higher cost of financing will have to be faced and the reduction of the ECB’s balance sheet, which as of March will stop reinvesting maturing debt.

The Treasury counts in its favor that it will have to refinance “only 13% of the debt portfolio, the lowest percentage among the largest economies in the euro zone.” Thus, this year higher interest rates will be paid for one eighth of the total outstanding debt. But that higher interest will still be lower in many cases than that of the bonds that mature during the year. Thus, last week’s 10-year syndicated issue, at 3.17%, will serve to refinance a bond issued in 2012 at 5.4%, for an amount of 22,000 million euros that matures tomorrow. “At the end of the year there is another bond that matures with a coupon of 4.4%. Therefore, we continue to hope to obtain savings through this substitution effect”, points out López Barceló, who is confident that, as predicted by the market, the profitability of the 10-year Spanish bond will be lower at the end of the year than it is today. “The interest burden as a percentage of GDP in the coming years will stabilize at current levels, which are very contained in historical terms,” ​​says the general director of the Treasury.

1,400 million less per month

With these wickerwork, the withdrawal of the ECB will be “perfectly acceptable” for the Spanish sovereign debt. López Barceló explains that already in the months of October and November the ECB’s exposure to Spanish debt has been reduced by 1,400 million euros per month, “an amount that is not far from what will happen from March”. “Debt purchases by the ECB before 2015 did not exist. The 2014 financing program was very close in volume to our gross financing needs in 2023, so there are similarities that give us confidence. Although the best sign for the future is what we are observing in the first auctions of the year”, he concludes.

Banks increase their exposure to Spanish debt

bond purchases. While the ECB is going to reduce its exposure to Spanish debt, other investors will have to take over, taking advantage of the rise in yields. Although the weight of non-residents on the total outstanding debt has remained above 40% for years, surpassing countries like Germany and Italy, López Barceló expects banks to acquire larger amounts of public debt in the coming months. Already last year the entities raised their exposure by 26,000 million. However, its debt holdings over the total, with a percentage of 13.5%, is far from the highs of 2012, at 30.6%. Along with the banks, the Treasury will also have the backing of 12 state-owned companies, such as SEPI, Paradores or the FROB, which can use the treasury surplus to purchase debt. “It has been provided for years in the debt creation order,” he clarifies. These companies may submit non-competitive bids at auctions. That is, they cannot exceed 500 million per bid to avoid changes in prices. The appetite of non-residents, added to the interest that national bonds arouse among individuals, banks and public companies, will contribute to meeting the financing objectives. The Treasury forecasts gross emissions of 256,846 million in 2023, 10.4% more. For its part, net emissions will be around 70,000 million, far from the 130,000 million of 2020.