Investors’ fears and their hunt for safe haven assets are having an unsuspected impact on European public debt yields: nearly two thirds of these securities are in negative territory; the German bund is beating a new record low on a daily basis and Spanish debt is approaching the minimum levels recorded in April 2015.
The aversion to risk is making the public debt market behave in an anomolous way. Over 50% of German public debt eligible for the ECB’s asset purchase programme is currently trading below the marginal deposit facility rate, which is the minimum rate at which the European institution can make its purchases.
Some analysts take for granted that the ECB will modify the regulation which obliges it to carry out the purchases in accordance with the capital key. The alternative could be that these acquisitions are made taking into account the volume of debt, which would benefit more indebted countries like Italy (130% of GDP) or Spain (100% of GDP).
The institution headed up by Mario Draghi has already implemented the first measures: last week it invested 9.743 billion euros in public assets, 43% less than the week before and the lowest level since the ECB extended its monthly asset purchases target to 80 billion euros in April.
In this context, the Spanish Treasury has taken advantage of the occasion to carry out its first auction since the Brexit referendum and the June 26 general elections. Yesterday, the Treasury placed 5.451 billion euros in long-term debt of different denominations. And it succeeded in almost halving the interest on its five-year debt issue.
Up to June, the Treasury had already placed 56.1% of the forecast medium and long-term debt for the full year (120.300 billion euros) and at an average issue cost of 0.87%. Without a doubt, this cost will significantly fall in the second half.