The Treasury places 5,335 million euros, with a question that lingers with investors
The debt market has turned after Spain had to pay interest to investors for six months for the placement of Letters. The state anticipates this change in trend, having built up for more than seven years without having to bear those costs to finance itself, thanks to the policy of the European Central Bank (ECB) aimed at acquiring public debt, and a context that clearly due to low interest rates. Until now.
Because the landscape changes at a forced pace in just a few weeks. The escalation in inflation — more than 10% in Spain through June and more than 8% in the eurozone, according to Eurostat — has prompted the ECB to announce its first rate hike since 2014. And investors have started charging interest from countries like Spain, compared to several years in which the Treasury has started financing itself for free.
The Treasury on Tuesday placed 5,333 million euros in 6- and 12-month letters, in the expected mid-range, paying investors for the 6-month reference for the first time since September 2015, according to data published by the Bank of Spain. .
Despite the interest rate hikes, investors continue to show interest in Spanish debt securities, as the combined demand for both references exceeds EUR 10,954 million, more than double what was ultimately granted in the markets.
Specifically, the body dependent on the Ministry of Economic Affairs has placed 1,149 million euros in semi-annual letters, against a claim of 3,184 million (practically triple), and the marginal interest rate is set at 0.13% compared to the negative interest rate of -0 .05% in the previous auction in June. In 12-month letters, it has placed 4,184 million, below the 7,770 million requested by investors, with a marginal return of 0.70%, compared to the previous 0.50%.
In recent auctions, the Treasury has had to pay investors more for debt, coinciding with the Fed rate hikes and price hike announcements also by the ECB, which has already announced it’s headed its way through the month of July. In addition, it comes at a time when the risk premium and yield on the 10-year bond are rising.
In view of this, the European Central Bank has already announced that the flexible reinvestment of bonds acquired during the pandemic that have matured will start in July with the aim of containing risk premiums, if necessary.
Also this Tuesday, the Council of Ministers will receive the Treasury’s report, which confirms that the average maturity of outstanding debt has been extended, while the refinancing requirement has decreased and so has the interest on debt in circulation. Two conditions that in principle partially alleviate the new phase of interest rate hikes.
For its part, the Treasury will hold an auction of government bonds on Thursday, in which the public entity expects to allocate between EUR 4,250 million and EUR 5,750 million. It will be a new moment to check the state of the national debt, one of the keys to the next general state budget that the executive is already preparing for 2023.
During Tuesday’s trading session, the yield demanded by investors on the 10-year Spanish bond is close to 2.4%, while the risk premium (the difference between the Spanish and German bonds, as a reference) falls to 109 basis points. Just two weeks ago, the premium was over 150 points and the bonus rose to 3% amid inflation tensions caused by the war in Ukraine.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
