Spain pays for the six-month debt for the first time since 2015

Headquarters of the Bank of Spain in Madrid. / RC

The Treasury places 5,335 million euros, with a demand that remains fired among investors

Jose Maria Waiter

The debt market has turned around after Spain has had to assume the payment of interest to investors for placing Letters for six months. The State assumes this change in trend, after having accumulated more than seven years without having to assume that cost to finance itself, thanks to the policies of the European Central Bank (ECB), focused on the acquisition of public debt, and a context marked by low interest rates. Until now.

Because the landscape is changing at forced rates in a matter of weeks. The escalation of inflation -more than 10% in Spain until June, and over 8% in the euro zone, according to Eurostat- has caused the ECB to announce the first rate hike since 2014. And investors have begun to demand interest to countries like Spain, compared to several years in which the Treasury has come to finance itself free of charge.

The Public Treasury has placed this Tuesday 5,333 million euros in letters at 6 and 12 months, in the expected medium range, and has done so by starting to pay investors for the 6-month reference for the first time since September 2015, according to data published by the Bank of Spain.

Despite the rise in rates, investors continue to show interest in Spanish debt securities, since the combined demand for both references has exceeded 10,954 million euros, more than double what was finally awarded on the markets.

Specifically, the body dependent on the Ministry of Economic Affairs has placed 1,149 million euros in six-month letters, against a demand of 3,184 million (practically triple), and the marginal interest rate has been placed at 0.13% , compared to the negative interest 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 securities, coinciding with the rate hikes by the Fed and the announcements of increases in the price of money also by the ECB, which has already announced that it will start the path of increases in the month of July. Furthermore, it comes at a time when the risk premium and yield on the 10-year bond are rising.

Faced with this, the European Central Bank has already announced that the flexible reinvestment of bonds acquired during the pandemic that have matured will begin in July with the aim of containing, if necessary, risk premiums.

Also this Tuesday, the Council of Ministers will see the report from the Public Treasury, which confirms that the average life of outstanding debt has been increased, while refinancing needs have been reduced and also the interest rate on debt in circulation. Two conditions that, in principle, partially alleviate the new stage of rising rates.

On its side, on Thursday the Treasury will hold an auction of State bonds, in which the public body expects to award between 4,250 million and 5,750 million euros. It will be a new moment to check the state of the public debt, one of the keys for the next General State Budget that the Executive is already preparing for 2023.

In the stock market session this Tuesday, the interest 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, of reference) falls up to 109 basis points. Just two weeks ago, the premium exceeded 150 points and the bonus rose to 3% amid the tension caused by inflation, derived from the war in Ukraine.

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