- Gross issuance falls to 220,145 million, of which more than half will be captured through medium and long-term bonds
- The average cost of new issues 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, the new record low
- The continued decrease in the average cost has reduced the financial burden by 12% from the maximum in 2014
The Treasury has announced the financing strategy for 2018, a year in which it will make a net issue of 40,000 million euros, which represents a reduction of 11% compared to 2017. The gross issue will amount to 220,145 million euros, below the previous year, of which 126,310 will be in the 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 area during this year.
The objectives for the year that has just started are based on the successful fulfillment of the strategy set in 2017. Net financing stood at 45,031 million euros, an amount higher than that foreseen by including the 10,192 million of the loan granted to Social Security. This loan did not translate into an increase in the fiscal deficit or in the debt / GDP ratio. Meanwhile, the gross issue has stood at 233.9 billion euros.
The average cost of new issues during 2017 has remained close to historical lows, increasing only one basis point (one hundredth) compared to the previous year, to 0.62%. For its part, the cost of outstanding debt has decreased to 2.55% at the end of the year, the lowest figure in recent Treasury history. The continuous decrease in the average cost, thanks to the maintenance of confidence in Spain by investors, 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 translated into savings of 2,493 million euros.
In turn, the average life of the outstanding debt has increased from 6.20 years in 2013 to 7.13 years in 2017, reducing the risk of refinancing the State Debt and the vulnerability of the financial burden to the announced normalization of monetary policy in the euro area. The concentration of long-term issues – those made at 30 and 50 years represent 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. Nonresident holdings were 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 emissions coverage ratio (ratio between the quantity demanded and the quantity awarded), has been placed at 2.14. The 10-year spread against Germany or the risk premium has also been reduced, to move around 110 basis points.
In 2018, the Treasury maintains the objectives of cost reduction, increase in average life and diversification of the investor base. The appeal to the market in net terms is reduced, 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 supposes 13,152 million less than in 2017. For its part, the issuance of Treasury Bills will be negative by 5,000 million. This will allow to continue lengthening the average life of the outstanding debt and to converge with other countries of the euro zone regarding the weight of the Bills on the total of representative State Debt securities in circulation.
The guideline will not be modified in the ordinary auctions of nominal Bonds and State Obligations with a fixed coupon. As a general rule, these regular auctions will take place on the first and third Thursdays 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 previous years.
This year the Treasury will continue to develop its European Inflation Indexed Bonds and Obligations program, 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, to exceed 4.3% of the total State Debt in circulation. 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 use bank syndications to place certain references, although auctions will continue to be the main method of issuing State Debt. In addition, the Treasury will have the option of calling special auctions, outside the usual calendar, to provide liquidity to certain references and thus improve the operation of the secondary market. The possibility of resorting to private placements, in which a security is issued directly to an investor, is also foreseen under favorable conditions for the strategic objectives of the Treasury.
