Year of consolidation, with debt costs at historic minimum

Year of consolidation, with debt costs at historic minimum

The year that ends now has been a consolidation exercise in the debt markets, with the yield of outstanding sovereign bonds at historical lows, at 2.4%, and tensions at the secondary in the last quarter of the year, reflecting of international uncertainty.

In 2018, the Treasury has had to capture 231,687 million euros in the markets to cover the state deficit and finance debt maturities, the lowest figure since 2012.

This lower appeal to the market is explained by the increase in budget revenues, the reduction of expenses such as the Autonomous Liquidity Fund (FLA) -because the communities can already go to the market to raise financing- and the reduction of the cost of the derived debt. of low interest rates, according to the Treasury.

Thus, 2018 closes with a final net issuance of 35,000 million, 5,000 million less than initially envisaged by the Ministry of Economy, and 10,000 million below that corresponding to 2017.

And this has a positive effect on the interest burden of the public debt, which will be around 2 billion below the 31,500 budgeted under this heading.

The bulk of the 2018 issue, as usual, focused on the medium and long term, which amounts to 131,485 million (8,000 less than in 2017), while in letters 82,202 million were placed in the markets.

The favorable interest rate scenario allowed for the average cost of issuance to be 0.67%, somewhat higher than the 0.62% in 2017, which the Treasury attributes to the longer terms to which this exercise was issued (more than 10 years ago). , 8 years to 11.9 on average).

This slight rise in the issue price has not prevented to reduce the average cost of outstanding debt to its historical minimum, to 2.39% (2.55% in 2017 and 3.73% in 2013).

And in 2018, the average life of outstanding debt has been increased again to 7.52 years, compared to 7.13 last year and 6.2 years in 2013.

Furthermore, at this low interest rate, the Treasury has amortized 8,000 million euros in advance from the 2012 ESM loan for the recapitalization of the financial system, so that the outstanding balance stands at 23,721 million (of the 41,333 million received).

Another factor in the analysis of 2018 is the progressive recovery of foreign investors, who already represent 44.8% of public debt holdings.

The consolidation effect has also been felt in the secondary market of public debt, in which the Spanish 10-year bond has traded in 2018 in a wide range, between 1,146% and 1,724%, with the risk premium in one. fork of 65-132 basic points.

The milestone that marks the highest rate of the Spanish bond is on October 19, at 1.735%, affected by the sharp rise in Italian debt, in full battle between the authorities of the country and the European Commission by the decision of the Government transalpine to increase the public deficit at its own risk.

The discrepancies seem to have closed, but the last quarter of the year has led to too many uncertainties – the "brexit", the weakness of global growth, the evolution of oil, geopolitical tensions and the rise of populisms, among others – to appease markets

For the Spanish risk premium, which measures the surplus of profitability that investors demand of a country against the German debt, the most critical moment of the year (132.29 points) was on May 29, on the eve of the motion of censorship that ended the Government of Mariano Rajoy.


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