Spanish Treasury takes advantage of investors’ optimism

Confidence in the recovery of the Spanish economy is the reason why more and more national and international investors are willing to buy Treasuries, although they offer a minimum return. The Treasury has put today its bills 12 months below 1%, its minimum from 2010.

The money the State is saving with the latest auctions well deserves an analysis. In June of last year, before Draghi said: “We will do all that is necessary to save the euro,” Spain used to pay more than 5% interest for 1-year-bills. Thereafter, the cost of funding has been reduced gradually to 1.36% of September’s auction. It was set at 0.96% on Tuesday.

The Government hopes the improvement of financing conditions in 2013 will pay off with savings of five billion euros, up from 38.6 billion budgeted. Some analysts believe that figure may fall short and predict that the savings could be more closely than the 8 or 9 billion.

Another symptom of investors’ appetite for Spain are purchases of debt. The interest of the Spanish 10-year bond fell from the 4.3% threshold on Tuesday. This improvement, along with the upturn in the profitability of the German bund, allowed the risk premium at any time of the day below the 240 basis points, very close to the minimum reached in 2011.

The risk premium has been moving between 240 and 250 basis points for several months, with the exception of some sudden movement as a result of specific crisis such as the one suffered by the Italian Government. The majority of experts expected it to keep moving at these levels at end of year, but they hope that, if the recovery of the Spanish economy is confirmed, in 2014 the risk premium may go below the 200 points of difference with the German bond.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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