Monthly growth is accompanying the increase in debt issued to finance the current account deficit.
More than 400 billion euros of the securities issued by the Spanish Treasury are in overseas investors’ hands. The rest is distributed amongst domestic investors: local banks (170 billion euros), insurance companies (56 billion euros) and funds (50 billion euros).
The Pension Guarantee Fund is one of the main investors and has obtained good yields in the past few years. But these are set to suffer sharp declines in the future due to the current fall in interest rates.
Debt issues with negative rates (mainly short-term bills), which were applauded because of what they mean for cutting public spending, will have consequences for savers.
Insurance companies are concerned about this issue and its impact on their business. They may find themselves facing unrealised losses in their portfolios, which could threaten their solvency.
In the case of the banks, who have seen their results boosted over the past few years by yields on their debt holdings, a source of income is disappearing. And this is happening before credit flows have normalised and the country’s lenders have recovered from the crisis.
Spain has suffered from a chronic deficit of domestic savings, relying too heavily on foreign savings to finance its growth.
Therefore confidence is crucial and political uncertainty undesirable. The fact Spain is exiting the crisis does not alter this pattern and the need for foreign savings remains the same. That said, households and private companies have reduced their indebtedness, which means less exposure to external funding.
That is not the case for the Spanish Treasury. It is increasing its auctions and continues to depend on overseas investors to cover more than half of its financing needs.