• Gross issuance falls to 220,145 million, of which more than half will be collected through medium and long-term bonds
  • The average cost of new emissions stood at 0.62% in 2017, close to historical lows
  • The cost of outstanding debt fell to 2.55% at the end of last year, a new historical low
  • The continued decrease in the average cost has allowed a 12% reduction in the financial burden from the maximum in 2014

The Public Treasury has announced the financing strategy for 2018, a year in which it will make a net issuance of 40,000 million euros, which represents a reduction of 11% compared to 2017. The gross issuance will amount to 220,145 million euros, below the previous year, of which 126,310 will be medium and long term. The objectives for this year are once again the increase in the average life of the debt, the reduction of costs and the diversification of the investor base. All this, in a context of economic recovery in Europe and in view of the foreseeable gradual normalization of monetary policy in the euro zone during this year.

The objectives of the year that has just begun are based on the successful fulfillment of the strategy set in 2017. Net financing has been placed at 45,031 million euros, higher than expected, including 10,192 million of the loan granted to Social Security. This loan did not translate into an increase in the fiscal deficit or the debt / GDP ratio. Meanwhile, the gross issuance has stood at 233.9 billion euros.

The average cost of new emissions during 2017 has remained close to historical lows, increasing only one basic point (one hundredth) compared to the previous year, to 0.62%. For its part, the cost of outstanding debt has been reduced to 2.55% at the end of the year, the lowest figure in the recent history of the Treasury. The continued decrease in the average cost, thanks to the maintenance of investor confidence in Spain, has allowed the reduction of the financial burden in terms of National Accounts by 12% from the maximum reached in 2014, which has meant a savings of 3,567 million euros. The interest charge has fallen by 8.8% compared to the Budget in 2017, which has resulted in savings of 2,493 million euros.

In turn, the average life of outstanding debt has increased from 6.20 years in 2013 to 7.13 years in 2017, reducing the risk of refinancing of the State Debt and the vulnerability of the financial burden to the announced normalization of monetary policy in the euro zone. The concentration of the issues in the long terms – those made at 30 and 50 years represents approximately 11% of the total issued in the medium and long term in 2017 – has been possible thanks to the high demand for Treasury securities throughout the year.

The Treasury investor base continued to be diversified. Holdings of non-residents remained stable at around 42% of the total. Even in the moments of greatest political tension in Catalonia, investors have continued to bet on the strength of the Spanish economy. The ratio of coverage of the emissions (relation between the quantity demanded and the quantity awarded), has been placed in 2.14. The 10-year spread against Germany or risk premium has also been reduced, to move around 110 basis points.

In 2018, the Treasury maintains the objectives of cost reduction, increase in the average life and diversification of the investor base. The appeal to the market is reduced in net terms, up to 40,000 million euros. Gross financing will amount to 220,145 million euros, of which 126,310 million will be in the medium and long term, a figure that represents 13,152 million less than in 2017. For its part, the issuance of Treasury Bills will be negative in 5,000 million. This will allow to continue extending the average life of the outstanding debt and converge with other countries of the euro zone with regard to the weight of the Letters over the total debt securities of the outstanding State.

The pattern will not be modified in the ordinary auctions of bonds and nominal State Obligations with fixed coupon. As a general rule, these ordinary auctions will take place on the first and third Thursday of each month. The expected issuance in ordinary auctions will be within the published range without having to reach the maximum announced, as was done in the previous years.

This year the Treasury will continue to develop its Bond and Obligations program indexed to European inflation, which allows diversifying the investor base of Spanish debt, incorporating a possible auction of an indexed reference in the first auction of the month. This program, started in 2014, has accumulated a total volume of 41,803 million euros, progressively increasing its weight in the total Public Debt portfolio, exceeding 4.3% of the total outstanding State Debt. The Kingdom of Spain has become a reference issuer in this market, along with France, Italy and Germany.

As in previous years, the Treasury will resort to bank unions to place certain references, although auctions will continue to be the main method of issuing State Debts. In addition, the Treasury will have the option to call special auctions, outside the usual calendar, to provide certain references with liquidity and thus improve the functioning of the secondary market. The possibility of resorting to private placements, in which a value is issued directly to an investor, is provided under favorable conditions for the strategic objectives of the Treasury.

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