By Cristina de la Sota | Voz Populi | Foreign investors returned to give Spain a vote of confidence. The soothing effect generated by the European Central Bank's expected debt purchases is working, after the devastating effect of bad sales in recent months. In September non-residents bought Spanish debt for the first time since November 2011. They are once again the main holders of Spanish debt (35.4% of the total) and a 210,2-billion euro portfolio.
The market has been waiting an ECB intervention in the bond market for months. On September 6, the central bank launched a new procurement plan (OMT) to acquire short-term debt, up to three years, provided that the country concerned will seek help from its EU partners.
Spain has not made any moves but the simple expectation, along with the confidence generated by cuts and reforms implemented by the government, have served to encourage foreign investors to buy Spanish debt for the first time in nine months–a buyer trend that for weeks has been facilitating the Treasury's task in debt auctions and that is beginning to appear reflected in official statistics.
Foreign investors increased their debt portfolio on 18.4 billion euro in September increasing it up to 210.2 billion, according to the latest Treasury data.
Non-residents have been avoiding Spanish risk for months and Spanish bond sales had been constant since November 2011. Despite the light thrown by the data, the debt portfolio held by foreign investors is far from the maximum of 309.8 billion reached in September last year. This year about 71.2 billion have been sold.
Yet, September purchases have caused non-residents to become again the main Spanish debt holders with 35.4% of the total, followed closely by Spanish credit institutions (32.35%).
The minister for the Economy and Competitiveness Luis de Guindos has acknowledged this week that foreign investors are starting to buy Spanish debt. September figures already show it, prompting predictions that in October the same trend will continue or improve. Large institutional investors such as Pimco have publicly acknowledged their interest in Spanish debt, precisely because of the ECB buying program, but we'll see whether the foreign interest is consolidated or not, as there are already companies like ING and RBS that have recommended their customers to be cautious, following the good performance of Spanish debt in recent weeks.
For now, lower bond yields offered today compared to last summer levels have not diminished the appetite abroad. In fact, the increased presence of non-residents in Treasury auctions has also allowed banks to reduce purchases of Spanish debt.
In September the banks have sold 3 billion euros, breaking the recent buying trend. Last time they reduced their exposure to Spanish debt was in April.
Millions of debt auctions conducted by the ECB in December last year and February this year (that led the bank to pay more than a trillion euros to the European financial sector) made many Spanish banks use these credits earned at 1% three years to buy Spanish government debt to higher returns. A lucrative deal at a resort for the banking business.
This operation, known as carry trade, has led the Spanish banks to take centre stage in the auctions of State and thus become the main funder.
In August the bank's exposure to Spanish government debt peaked at 195.2 billion euros. That month they became the State's largest creditor. A place taken now by foreign investors.