November 30, 2020

Spain has already captured 79% of the long-term financing it needs this year | Markets



Carlos San Basilio, Secretary General of the Treasury, pilots Spain’s financing strategy with a firm hand. Its objectives are to cover the public deficit, which will soar above 12% this year, without any setbacks, and also repay the maturities of the debt launched years ago. With five months still ahead, the country has already raised 147,292 million euros in debt in the medium and long term, according to the latest statistics from the agency. It is 79.2% of the total forecast, expanded last May before the outbreak of the coronaviral pandemic.

Fast and with good handwriting. This is how the State financing agency is executing its strategy to face the crisis. As soon as the problems came, the Treasury began to increase the size of auctions, both in bills and bonds and bonds. Come August, it can display a minimum average cost in the money it has raised in 2020, of only 0.29%, with a cost for all outstanding debt that remains at historical lows: 1.94%, at yesterday’s date.

It is true that, in total, they still have to raise 86,518 million euros, but the most difficult task, that of placing medium and long-term debt, is practically solved. Until the end of the year, it will have to sell some 38,700 million euros. It also plans to sell short-term debt – letters, with maturities between three and twelve months – for about 48,000 million euros (see chart). But this role does not imply any difficulty. Even in the worst moments of the sovereign crisis that struck the peripheral countries of the eurozone between 2010 and 2012, there were no significant obstacles to selling this asset. Of this type of debt, it has already captured 57% of the expected amount, after having awarded 63,541 million.

Forecast

The Treasury has been proactive, not only with the expansion of the increase in the amount of auctions but with syndicated issues. Once the state of alarm was decreed, it placed 37,000 million in this type of operations, at the hands of its reference banks. He also did it with terms never seen in Spain, such as seven and twenty years, and very strong demand in all of them. Already before Covid-19 exploded, on January 14, it managed another 10 billion outside the auction calendar.

The ECB has been the key to the vault of the Spanish financing strategy. Specifically, the 1.35 billion anti-pandemic repurchase plan launched by Christine Lagarde, of which she had already used 440,057 million at the close of last Friday. Of this amount, 46,111 million have gone to Spanish sovereign debt.

The yield on the Spanish 10-year bond has plummeted from 1.26% paid in just after the state of alarm was declared to below 0.3%. The ECB cannot buy directly on the issues made by the club’s countries, but the effect is the same. In essence, it is bought by an investor and the investor replaces it with the Central Bank the next minute. The President of the Government, Pedro Sánchez, yesterday ruled out resorting to the European fund MEDE, which can issue up to 24,000 million negative rates for Spain, as El País published on Monday the 3rd.

Carlos San Basilio, with the Lagarde shield, raised the forecast for gross debt issuance in the medium and long term on May 21, to 185,969 million, compared to the initial 117,469 million. It also increased the forecast for short-term financing, from 79,035 to 111,688 million. In any case, the Treasury continues to extend the average duration of the debt, up to 7.71 years, compared to the 7.55 years at the end of 2019. In total, the agency plans to raise 297,657 million euros, compared to 196,504 million calculated in January. Computing bills and long-term debt, it already has 70.9%.

The yield on the 10-year bond falls from 0.3%

Near annual minimums. The interest rate on Spanish 10-year debt closed yesterday below the 0.3% threshold. It stood at 0.283%, its lowest level since March 11, a few days before the state of alarm was declared on the 14th of that month. It is also close to the 0.176% annual low that was set on March 4.

The first and last auction in August. Tomorrow, the Treasury will go to market to capture between 3,750 million euros and 5,250 million. The maturities will be April 2023, July 2027 and October 2030. It will also sell obligations linked to European inflation that will expire in seven years. This will be the first long-term debt issuance in August and also the last, since the State financing agency, as usual, will not call the one scheduled for the end of August, in this case set for the 20th. It will maintain , foreseeably, the one scheduled for the 25th, although this will be on paper in the short term

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