Spain pays for all debt terms for the first time since 2015

Free financing in the eurozone is definitely over. Spain already pays for all debt terms for the first time since 2015. The Public Treasury placed 3-month bills on Monday at a positive interest of 0.145%, after seven years charging for them.

How Spain places its debt: filter for speculators, coordination with Italy and tension for every million in interest

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The yield of the shortest maturity of all those to which Spain issues debt was the last one that was missing to enter positive territory in a context of generalized increase in the cost of financing, after raising the European Central Bank (ECB), in Julyreference rates from 0% to 0.5% to stop feeding inflation.

This is a milestone in our country, which literally leaves the era of free money. The one inaugurated by the ECB after the euro crisis and the bank bailout in 2012 so as not to finish drowning the most indebted economies in the eurozone and favor recovery, slowed down by austerity measures.

This expansionary monetary policy intensified with the shock of the COVID pandemic, but the institution was forced from the end of 2021 to gradually withdraw this extraordinary stimulus, which consisted of lowering official interest rates to historical lows and creating billions euros to buy debt from states and companies to guarantee market demand, according to certain conditions.

Thus, it now faces the difficult challenge of tightening financing conditions across the board to stop feeding runaway inflation without particularly harming the countries with the most fiscal imbalances. Among them, Spain itself, and Portugal, Greece and Italy follow.

In this process, our country has been issuing since June —taking into account all maturities— at a cost higher than the average interest rate of all outstanding debt, according to Treasury statistics. Something that has not happened in recent decades (see graph), which means that after falling to a minimum due to the support of the ECB, the average cost is going to rise, also increasing the interest bill faced by the State, and that it had stabilized at around 2% of GDP.

The cost that Spain has to assume to get money and finance public spending that exceeds income (the deficit) increases, but at the moment there are no demand problems in the debt market, even though the ECB's involvement is smaller.

That yes, this year, the Public Treasury started with the objective of obtaining 75,000 million, and at the end of July it met 75% of this goal, which reflects that it has stepped on the accelerator in the first part of 2022 to take advantage of the extraordinary conditions .

Differences with the debt crisis of 2010-2012

In this context of withdrawal of monetary stimuli, the ECB continues to ensure that its actions do not undermine the economic recovery —here are the mechanisms it is using—. It is just one of the differences in the current situation compared to the 2010-2012 euro crisis, despite the greater over-indebtedness of the eurozone economies after the COVID shock.

The situation is different because the will of the European institutions has changed and, above all, because the favorable financing conditions of recent years mean that interest bills for each year are generally much lower (around 2% compared to 3.7% of 2013, in the case of our country), and that the forecasts do not place them much higher in the medium termeven though a rate hike cycle has begun.

Meanwhile, economic activity continues to be fully rebuilt, despite the brakes caused by the war and inflation itself, with Spain leading the growth rates in the EU, as the recovery funds are deployed.

In a context like the current one, of a general tightening of financing conditions (also of mortgages and all types of loans), it is not only important that Spain start from a cost at historic lows, but also to have achieved an average maturity in maximums.

Spain would have eight years to renew all its debt, compared to seven years for Italy and Portugal. Our country has taken advantage of the ECB's support to lengthen the life of its debt as a whole, which is known as average maturity. This is a clear argument for stability: there is time to refinance the different bonds without having to make great efforts at the worst moment, as happened in 2012, when bonds were issued at more than 5% in the primary market. The benchmark bond, 10 years, is now at 2%.

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