Spanish regions’ “patriotic bonds” trade at discounts of up to 15pc

Hundreds of thousands of retail investors may share an uncomfortable feeling these days, that of being trapped under their holdings of what once was commercialised as ‘patriotic bonds’. Unloading them is proving a difficult task.

While most sovereign and sub-sovereign debt securities in the secondary market move millions of euros, daily trade volumes of short-term paper issued in 2011 and 2012 by Spanish regional governments rarely reach the modest figure of €50,000. Simply put, there currently are very few buyers willing to take on the autonomous risk. And those who dare require steep discounts.

lkj1Just Valencia and Catalonia, two of the most financially troubled regions and the first ones to recently ask the central government for help, sum €8.8 billion in bonds sold to individual savers during the last 16 months. Last week, 2-year Catalan debt placed in April 2011 traded at an almost 13 percent discount, and 1-year Valencia debt did so at a 7 percent loss.

It can be worse. According to data from the Spanish stock market operator BME, paper sold by Andalucia and Murcia don’t even register any transactions. Market agents say perceptions on Spanish regional debt are more negative than on State debt, whose yields are rapidly approaching the rescue zone.

So unless the need of cash is urgent, investors in ‘patriotic bonds’ would be best advised holding on to them. The scenario is one of lack of liquidity and punishing conditions. On the reverse side, though, buyers on the secondary market are set to make succulent profits of up to 24.6 percent. After all, as CM Capital Markets analyst Jorge Lage points out,

“The central government will not let any of the autonomous regions default, because that would hurt further the cost of international credit for Spain.”

Both regional administrations in Catalonia and Valencia have reminded investors that paying back their bonds is a priority, and that the central government has introduced several mechanisms to inject capital and meet commitments. How do you say ‘keep calm and carry on’ in Catalan language, again?

With information from

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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