The body under the Ministry of Economic Affairs acknowledges that the withdrawal of purchases by the ECB entails an increase in borrowing costs for the state
Key moment for the Spanish treasury. The body under the Ministry of Economic Affairs, in charge of managing the government debt strategy, presented its strategy for 2023 on Thursday. raised interest rates and canceled its debt purchases.
Keeping these matters under control is essential because they finance the government deficit, among other things. And in this difficult context, the Treasury has announced that it will issue a net debt issuance of EUR 70,000 million in 2023, a level similar to that seen at the end of last year.
However, changes may occur in the final figure during the year. Without going further, in 2022 the figure for new emissions has already been reduced from the initially announced 75,000 million to 70,000 million, also thanks to the better-than-expected behavior of the economy and the resistance of the labor market, as explained this Thursday by the Secretary General of the Treasury, Carlos Cuerpo, during the presentation of the organization’s strategy.
The sum of net financing and amortization results in gross issues for 2023 of approximately EUR 2,570,000 million, an increase of 10% compared to last year, thanks to these amortizations on medium and long-term instruments.
The Treasury’s strategy to avoid the complex scenario of rising interest rates is done again, as in 2022, by minimizing Treasury bills (short-term debt) in the portfolio, focusing on financing through medium- and long-term instruments term through bonds and debentures. This allows the average maturity of the debt to be maintained at around 8 years, a historically high level.
This expectation is essential for the body, taking into account that in the longer term, the Treasury will have greater room for maneuver in view of the next due dates, avoiding periods in which it will have to deal with a large volume of payments.
“Despite the tightening of financing conditions, the Treasury has maintained favorable market access, maintaining the risk premium and the funding ratio of our issues was 2.5%, implying great confidence in our issues,” said Cuerpo, recalling that in previous crises, the rise in bond yields has been accompanied by a similar recovery in credit risk.
According to the Treasury’s projections, the increase in the average cost of issuance in 2022 was contained. “Despite the 250 basis point increase in official interest rates, our average cost of government debt has barely increased by 9 basis points to 1.73%”.
Looking ahead to 2023, they foresee a continuation of the upward trend, albeit in a controlled manner. “If the ECB itself talks about going ‘game by game’, we too should be cautious and watch how the markets adjust to the macroeconomic situation and the actions from the second quarter onwards,” Cuerpo said during his presentation.
However, they recognize that the turning point in the ECB’s debt purchases will also be the cost of borrowing. “Borrowing costs will continue to grow, but in relative terms this increase is accompanied by greater growth of the economy and thus greater stability in the weight of the interest burden.”
Corps recalled that the state has already lived without ECB purchases, with references not within the perimeter of the purchase programs and carried out with absolute normality. “Given the strong demand and good access to the market, this gradual withdrawal of the ECB translates into an arrival of investors who will take their place without any problems.”
Regarding his investment base, Cuerpo highlighted the strong appetite shown in the latest Treasury issues. Exactly, the first medium-term auction of this year has had a very high demand, about 13,000 million euros for an award of about 7,000 million.
The Body recalled that the total weight of non-resident investors “has remained constant at around 40%”, despite the complex international scenario and the normalization of debt purchases by the ECB. To get an idea, during the previous debt crisis in 2012, that percentage was barely 30%.
Last year, domestic banks also increased their holdings of Spanish debt by 26,000 million, which now represent 13.7% of outstanding debt.
At that time, Cuerpo acknowledged that the fact that the big banks do not participate in the deposit war by offering higher yields to their customers has made it possible to discover a “renewed interest” in the purchase of government bonds “from individuals, institutions, domestic financiers and non-resident investors.
Among the novelties of the new year, the Treasury also plans to reopen its green bond issuance, having held such auctions worth 8,000 million euros. “There will be several auctions this year amounting to around 3,200 million euros, a figure comparable to the 2022 reopenings after last year’s first issue,” they recalled from the organization.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
