• The net appeal to the market is 7,000 million lower than that of 2013 and will be obtained through bonds and obligations
  • The average cost of emissions has dropped to 2.45% in 2013, half a point lower than that registered the previous year
  • Titles linked to inflation may be launched this year, if the right conditions are met

The Spanish Public Treasury today announced the financing strategy for 2014 that it describes as ambitious and demanding with the market. The net issue will be 7,000 million lower than the previous year, up to a total of 65,000 million euros. The gross issue will amount to some 242,370 million, of which 133,280 million will be in the medium and long term. In 2013, the necessary steps were taken to facilitate the issuance of bonds linked to European inflation, if the appropriate conditions were met.

The objectives of the year that has just started are based on the fulfillment of the strategy set for 2013 in more complex circumstances than the current ones. Net financing stood at 71,877 million euros and gross financing amounted to 236,695 million, in both cases slightly above expectations. The average life of the outstanding State debt portfolio has been 6.20 years and the average cost of issues has dropped to 2.45%, half a point lower than in 2012 (annual average).

For 2014 the Treasury persists in the objectives of lowering the cost, maintaining or extending the average life and diversifying the investor base. It will need less appeal to the market in net terms, specifically, 7,000 million below the 2013 figure. The 65,000 million expected include 23,000 million to finance the Autonomous Liquidity Fund (FLA) and will be obtained entirely through medium instruments. long term.

Gross financing will amount to some 242,370 million euros, of which 133,280 will be issues in the medium and long term, a figure that represents 4,847 million euros more than in 2013. This is due to the greater maturities of debt that the Treasury will face over throughout the year and despite the fact that the budgeted figure for the State deficit is lower. The net issue of bills is expected to be nil.

Throughout 2013, the Kingdom of Spain has managed to lengthen the average life of the issues and mitigate the fall in the average life of the outstanding debt portfolio. At the same time, the Treasury has focused on providing, predictably and frequently, liquid securities that serve as a reference in the fixed income market. Along the same lines, this year it will focus its medium and long-term financing on its benchmark tranches of three, five, ten, fifteen and thirty years.

The modalities for issuing State Debt instruments will not change. The Treasury will cover most of its issues through regular auctions of State Bonds and Obligations, following the usual schedule announced at the beginning of the year. As in 2013, the Treasury will have the option to call special auctions, outside its normal calendar, to provide liquidity to certain references of its yield curve and to correct imbalances in the secondary market. These special auctions will be small and will be restricted to the Market Makers of the Kingdom of Spain.

It is also envisaged, as is customary, to resort to the method of bank syndications for the issuance of the first tranches of the State Obligations at ten, fifteen and thirty years, although a Bond could also be reopened using this formula. The Treasury may also issue through private placements, in which a security is placed directly to an investor.

The guideline for Bond and Obligation issuance announcements will not be modified. As a general rule, instruments issued in ordinary Bonds and Obligations auctions will be published at 2:00 p.m. on the Friday before each auction, while the issuance targets will be announced at 2:00 p.m. on the Monday before each auction. The special auctions will be called and announced two days before it is held, while the bank unions will be made public at the time of execution of the operation.

On the other hand, the Public Treasury has spent several years exploring the possibility of issuing Bonds and Obligations indexed to the European Harmonized Index of Consumer Prices, which are already issued by other countries in the euro zone such as France, Italy or Germany. There is a natural investment base, both national and international, that has a structural need to buy assets that compensate for the loss in value due to inflation. In this case, they are mostly different investors to which the Treasury already has access. Thanks to the other countries that already offer these products, there is also a liquid market in which a new issuer would find its natural reference.

In 2013, the necessary steps were taken to facilitate the issuance of these assets. Under the right circumstances, the Treasury will be in a position to launch a program of Bonds and Obligations indexed to European inflation, with a view in the coming years to forming a benchmark curve to which it can provide liquidity through frequent reopening.

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