Investors return with less risk appetite. In the last two syndicated issues of Spanish Treasury bonds, the demand reached record amounts in the history of the euro zone for their respective terms. In January, it exceeded 46,500 million for the paper to ten years. And in February the 43.400 million were touched for the one of 15 years.
At the beginning of the Great Recession, these funds fled the Spanish public debt. Later, as the first signs of stabilization began to be seen, the first calls landed hedge funds or high-risk funds, which glimpsed the imminent gains of a recovery. And as that improvement took shape, others appeared less speculative. In 2017, the return of capital was interrupted, partly due to the separatist tensions in Catalonia. But in 2018, once they dissipated, there was a massive influx of more conservative investors.
And the most illustrative example is that of Asians: if in 2017 they bought 7,590 million Spanish debt, in 2018 they acquired 24,078 million, according to data provided to the Treasury by market makers (or intermediary entities). In the syndicated issue of ten-year bonds, Asians took 11.8% of the total when, just a few years ago, their presence was almost non-existent. They did not return in that proportion since 2010.
Last week, one of Japan's most important funds, Mitsubishi UFJ, published its exposure to foreign public debt. And the Spanish was the second after the American with 12.3% of the total. "Profits are falling everywhere. So you can not invest in German bonds given the levels they offer, but it still makes sense to invest in Spanish bonds for the premium provided by "and" the robust economic conditions, "he said. Bloomberg a fund manager. Despite the exchange risk, they started investing in Spain since S & P raised the credit rating in March of last year, and do not see a problem in the imminence of elections.
The improvements of rating they also facilitate the return of these investors. Last year, two of the three main rating agencies – S & P and Fitch – placed Spain at level A (medium to high quality). Now we only need Moody's, which is a bit late.
Change of profile
In recent years the type of buyer has changed. Spanish banks have been reducing their portfolios of national bonds, which they had to acquire en masse to avoid the collapse of auctions in the middle of the crisis. Its position has fallen from 30% to 16% of the total. To a large extent they have been replaced by the ECB, which now owns 22% thanks to its debt purchase program. Non-residents decreased in the recession years from 45% to 34%. And gradually they have returned until they stabilize again about 45%. However, the profile is different. The most speculative have left and the most conservative have returned.
Sources of the Ministry of Economy emphasize that in the last months they are observing an improvement of the risk premium, a bigger demand of bonds and a progressive recovery of investors that before did not go. "There is greater diversification of investors. In the midst of the European slowdown highlights the situation of Spain as a country that grows and with a large and liquid bond market, "says Carlos San Basilio, secretary of the Treasury.
The situation contrasts with that of Italy, where banks are running out almost everything, as happened in Spain during the crisis, a loop in which bank risk and the sovereign are fed back.
This new arrival of investors seems very important because the Spanish Treasury has yet to refinance around 200,000 million euros per year. And although the ECB reinvests the purchases made, it has stopped making new debt acquisitions.
The action of central banks
As Francisco Vidal, chief economist at Intermoney, explains, the decisive moment was when the central banks pointed to a lower hardness of monetary policy. "In 2018, there was fear in the market that the Federal Reserve could stop the economy. But Powell offered, first, to stop the rate hikes and, in January, stop reducing its balance sheet, which helped the fall in bond yields. Many investors who were in liquidity or in very short term due to the uncertainty, bought again. They know that within a reasonable time the central banks will play in their favor and will not incur losses, "says Vidal.
In a context of very abundant liquidity and in the absence of safe assets that provide profitability, the case of Spain stands out in Europe. "They value the correction of imbalances and the trend of greater growth due to Spanish domestic demand. They no longer ask about banking as before. If anything, the most specialized ask about the profitability of entities in a European environment of very low rates, "says San Basilio.
Germany is reducing debt in absolute terms and only offers 0.07% to ten years. In Italy, the political situation and the accounts of the banks generate uncertainty. In France, the debt less rent, the conflict of the yellow vests It causes concern and the deficit is not corrected. Outside the euro, with a balance close to 100% of GDP, the Bank of Japan continues to provide monetary impulses and, consequently, nonexistent returns, which explains why they look for a coupon in places like Spain, with a premium of about 110 basis points also supported by the ECB.
And the slowdown ensures that this scenario will continue for an indefinite time. "It is not so much merit of Spain as of the context of Japanization or Eurosclerosis, which leads bond interest rates at zero or negative levels. Every time there is less coupon and the debt is looked for that still pays a positive coupon as it happens with the one of ten Spanish years. The bad image that Italy is transmitting with its public deficit commitments also helps us. Thus, a student who has done half-duties like Spain seems good, "says Víctor Alvargonzález, founding partner of Nextep.
However, the drawback of this conservative investor is that he can leave very quickly if he perceives a change of perspective, experts remember. The bulging demand has made Treasury financing remain at historic lows even after the ECB has let fatten its asset acquisitions.
The greatest growth in Spain is not only seen in the purchases of public debt. There is also a sign of confidence in the recovery of foreign direct investment, according to data from the Bank of Spain. This is one in which "the investor has a long-term interest and significant influence in the management of the company in which he participates", says the supervisor's methodology. According to these figures, in Spain it increased from 6,700 million registered in 2017 to 38,200 million in 2018. It is the best data since 2008, when just before the bubble burst some 52,000 million entered the Spanish economy.
The statistics do not include purely financial investments, that is, they do not include portfolio purchases, bonds, value holdings or venture capital. So it is not a capital that leaves very quickly at the slightest hint of instability. On the contrary, these investments constitute injections in vein destined to take a share, buy a company, establish a subsidiary or real estate investments. They take longer to arrive, but have more long-term objectives linked to the progress of GDP. In short, they take longer to leave because they represent a commitment to an economy that is still advancing at rates above the rest of the euro zone.
By contrast, foreign portfolio investment, which is financial and more volatile, has decreased from 60,400 million to 36,800 million. In fact, in 2018, the Ibex 35 dropped more than 10%.