The aims for this year are to once again increase the average life of debt, reduce costs and diversify the investor base. This comes against a backdrop of economic recovery in Europe and the foreseeable gradual normalisation of monetary policy in the Eurozone over the course of this year.
The aims for 2018, which has just started, are based on the successful conclusion of the strategy set for 2017. Net financing stood at 45.03 billion euros, higher than expected, since it includes a 10.19-billion euro loan granted to the social security system. This loan did not translate into an increase in the fiscal deficit or in the debt/GDP ratio. Meanwhile, the gross issue stood at 233.9 billion euros.
The average cost of new issues in 2017 remained close to record lows, with only a basis point (0.01%) increase on the previous year, to stand at 0.62%. In turn, the cost of outstanding debt has fallen to 2.55% at the close of the year, the lowest figure in the Treasury's recent history. The continued fall in the average cost, thanks to continued investor confidence in Spain, has allowed the financial burden to be reduced in national accounting terms by 12% from its peak in 2014, which has led to a saving of 3.57 billion euros. The interest burden has fallen by 8.8% in regard to the 2017 Budget, which has translated into a saving of 2.49 billion euros.
In turn, the average life of outstanding debt has increased from 6.2 years in 2013 to 7.13 years in 2017, thus reducing the risk of refinancing State debt and the vulnerability of the financial burden to the normalisation of monetary policy announced in the Eurozone. The concentration of long-term issues - those made at 30 to 50 years represent approximately 11% of the total medium- and long-term debt issued in 2017 - has been possible thanks to the high level of demand for Treasury securities throughout the year.
The Treasury's investor base continued to be diversified. Non-resident ownership remained stable at around 42% of the total. Even at the moments of the greatest political tension in Catalonia, investors continued to commit to the strength of the Spanish economy. The coverage ratio for issues (relationship between the amount demanded and the amount awarded), stood at 2.14. The 10-year spread vis-à-vis Germany and the risk premium have also both fallen to stand at around 110 basis points.
In 2018, the Treasury will maintain its goal of reducing costs, increasing the average life and diversifying the investor base. Market calls in net terms will be reduced to 40 billion euros. Gross financing will amount to 220.15 billion euros, of which 126.31 billion will be medium- and long-term issues, a figure that is 13.15 billion lower than in 2017. In turn, the issue of Treasury Bills will be negative by 5 billion euros. This will allow the average life of outstanding debt to be increased and converge with other countries in the Eurozone in terms of the weighting of T-Bills out of the total of securities representing outstanding State debt.
The pattern of ordinary auctions of nominal State bonds and debentures with a fixed coupon will not be altered. As a general rule, these ordinary auctions will take place on the first and third Thursday of each month. The expected issue at ordinary auction will stand within the range published without needing to reach the maximum announced, as has happened in previous years.
This year, the Treasury will continue to develop its programme of bonds and debentures indexed to European inflation, which allows the investor base of Spanish debt to be diversified, incorporating a possible auction of an indexed benchmark bond in the first auction of the month. This programme, which began back in 2014, has accumulated a total volume of 41.8 billion euros, and has gradually increased its weighting in the total portfolio of public debt to stand at more than 4.3% of all outstanding State debt. The Kingdom of Spain has become a leading issuer in this market, together with France, Italy and Germany.
As in other years, the Treasury will resort to banking syndications to place certain benchmark bonds, although auctions will continue to be the main method for the issue of State debt. Furthermore, the Treasury will have an option to call special auctions, outside of the usual calendar, in order to provide liquidity to certain benchmark bonds and thus improve the functioning of the secondary market. The possibility of using private placements is also provided for, in which a security will be directly issued by an investor under favourable conditions for the strategic goals of the Treasury.
Non official translation
Pool Moncloa