Spanish debt yields could save €14 billion in interests in 2015

This has led to the weighted-average maturity of total debt reaching 6.7 years, while in the national budget the target was 6.5 years at the end of the year. The cost reduction of issuances is also significant. Although it is not as high as in previous years – in 2014 it fell 110 bp compared to 2013 – it is relevant considering the growing debt volume of the past few years.

 

Lower bond yields, which in the current year are on average at around 0.9%, led the average yield of debt stock at 3.35%, an all-time low. This has allowed the state to save more than € 12,000 million in interests in 2013 and 2014 with respect to the budget,  and could even allow savings of € 2,000 million in 2015. According to our forecasts, our central scenario considers a maximum debt-to-GDP ratio of around 101% in 2016, dropping to 98.5% in 2018.

 

These figures contrast with those outlined by the government in the Stability Programme, which considers a more favourable debt evolution: the highest level would be reached in 2015, without reaching 100% of GDP (98.8%), falling thereafter to 93.0% in 2019.

 

The key differences between the government’s scenario and ours are (i) further fiscal consolidation, leading to a practical balanced budget in 2018; (ii) higher nominal GDP growth and (iii) yields which, despite being slightly higher than our forecast, show a downward trend that diminishes the interest burden. This facilitates early debt stabilisation and continued reduction.

 

However, we have carried out a sensitivity analysis of public debt, factoring in a hypothetical shock in yields making them rebound 1pp throughout the period of time under analysis. This is to see if a worsening of the Treasury’s financing conditions could make the debt evolution unsustainable.

 

Under this scenario, our forecasts also envisage a sustainable public debt development. But it is true that in this case (i) the highest debt-to-GDP ratio would be reached later in 2017 and (ii) would be substantially higher than 103.2%. Thereafter, the volume of debt in relation to GDP would start to decline, falling from 100% of GDP only after 2019.  And this assuming that all other variables (growth, primary balance) evolve as in the baseline scenario.