THE SPANISH TREASURY S FUNDING IN 2016

Transcription

1 - 1 -

2 - 2 -

3 INTRODUCTION In 2016, Spain has pushed forth with the economic recovery that began in 2013 Q4, standing out as one of the main engines of growth in the Euro Area. This solid growth path has been accompanied by the correction of the imbalances that unleashed last decade s economic crisis. For the first time in its recent history, Spain has completed four consecutive years with a current account surplus while doubling the Euro Area s real growth rate. Economic growth in the past few years has been labour-intensive: since the end of 2013 the Spanish economy has generated almost 1.5 million new jobs, practically one out of every three in the Euro Area. A strong recovery in employment and the subsequent fall in registered unemployment foster private consumption and investment, while external competitiveness and export dynamics have continued to improve. Spain s banking system, after a huge effort in transparency, recapitalization and balance-sheet clean-up, is now in an optimal position to fulfil its function to transmit credit to the real economy. The Spanish economy s deleveraging process is thus taking place without weighing down on corporate or household confidence. The private sector has reduced its indebtedness by almost forty percentage points of GDP since the its peak in Regarding the public sector s weight in the Spanish economy, in 2016 the focus has been on budget consolidation, a complex task under low inflation rates. Since late 2014 public sector indebtedness has fallen. It is important to maintain this consolidation effort over the coming years in order to achieve total deleveraging both private and public in a way that reinforces the sustainability of the Spanish economy. The international stage has seen the US economy s decoupling from other large economic blocs such as Asia, Latin America and Europe, as well as significant political shifts in the UK and the USA. Geopolitics has become central to the world s macroeconomic equilibria and financial markets. Europe s recovery, albeit still moderate, has been supported by the European System of Central Banks asset purchase programme. The current year, therefore, begins with some uncertainties and risks in the international environment that could have a significant impact in capital markets. The Spanish Treasury has completed its 2016 funding programme and announces a similar programme for The Treasury must continue to take advantage of the favourable environment to make its debt portfolio more robust in view of the gradual increase in interest rates that will surely accompany the improvement in GDP and in inflationary expectations. To achieve this objective, it will combine transparency, for which it is already well-known as a benchmark issuer in Spain and Europe, with an appropriate degree of flexibility to allow it to adapt to a changing market environment that is not exempt from volatility

4 THE SPANISH TREASURY S FUNDING IN 2016 The Spanish Treasury has completed its 2016 funding programme achieving, for the second year in a row, minimum issuance and funding costs. As shown in Table 1, a total of billion euros have been issued, of which billion euros have provided net funding. Out of total gross issuance, billion euros have been issued through Letras del Tesoro and billion euros through medium- and long-term instruments. Table 1: The Spanish Treasury's funding in 2016 (effective terms, million euros) End 2015 Forecast Strategy 2016 End 2016 Total Net Issuance 47,717 45,000 35,043 Total Gross Issuance 236, , ,364 Medium- and Long-term 1 Gross Issuance 2 139, , ,368 Amortisation 95,997 84,301 85,301 Net Issuance 43,003 41,000 35,067 Letras del Tesoro Gross Issuance 97, , ,996 Amortisation 93,103 97, ,020 Net Issuance 4,713 4, Includes debt in other currencies, Bonos and Obligaciones, assumed debts, loans and other debts. 2 Includes two loans signed with the European Investment Bank (EIB) for a cumulative amount of 858 million euros. Thanks to a favourable dynamic in public revenues and a more efficient use of its cash position, the Treasury revised its funding requirement, from 45 billion euros announced in January 2016, down to 35 billion euros. The Kingdom of Spain has used this momentum to redeem 1 billion euros of its loan from the European Stability Mechanism, the fourth voluntary early repayment since the loan was signed in For the third year in a row, as shown in Chart 1, the Spanish Treasury has achieved record lows in both the cost of new issuance (0.61%) and the average cost of the outstanding debt portfolio (2.77%) Chart 1: Cost of Debt Outstanding and Cost at Issuance (%) Cost of Debt Outstanding Cost at Issuance - 4 -

5 These all-time lows in issuance costs have occurred even within a multiannual strategy intended to intensify issuance in the longest tenors of the yield curve. Average life at issuance of medium- and long-term debt has reached 11.5 years, well above 2015 s 9.1 years and more than twice the figure attained in 2012 (Chart 2). This issuance pattern has contributed to an extension in the average life of the outstanding debt portfolio, from 6.20 years in 2013 to 6.81 years in 2016 (Chart 3), leading to a reduction in the refinancing risk and the vulnerability of the financial burden in the event of an increase in Euro Area interest rates. Chart 2: Marginal Life (%) and Average Life (years) at Issuance of Bonos and Obligaciones Chart 3: Average Life of Debt Outstanding (in years) 100% 80% 60% 40% 20% % < >15 Average As usual, the bulk of gross funding in 2016 (89.3%, up to billion euros) has been obtained through 47 regular auctions carried out throughout the year, 24 Letras del Tesoro auctions and 23 Bonos and Obligaciones del Estado auctions. In the 24 auctions of Letras del Tesoro, 48 tranches have been auctioned, of which 47 have been issued at negative rates. Around 10.3% of the funding programme ( billion euros) has been covered through syndications. Throughout 2016 the Spanish Treasury has launched four new Obligaciones del Estado through this issuance technique: two 10-year benchmark bonds, a 30-year benchmark and the first syndicated issuance of a 50-year bond. The remaining 0.4% of funding (858 million euros) corresponds to two loans signed with the European Investment Bank (EIB). In 2016 the Spanish Treasury has reaffirmed its commitment to a wide and liquid curve of Bonos and Obligaciones linked to Euro Area inflation, issuing billion euros (6,5% of total medium- and long-term issuance, above the 6% registered in 2015) in 10 regular auctions. In May, a new 5-year tenor was launched for the first time through the auction procedure. In its first three years, the programme for Bonos and Obligaciones linked to European Inflation has reached an outstanding volume of billion euros, gradually increasing its size up to its current 3% of total debt outstanding. The Kingdom of Spain has become a benchmark issuer in this market, along with France, Italy or Germany

6 Table 2: Issuance in 2016 (million euros, in effective terms) LETRAS BONOS & OBLIGACIONES TOTAL LETRAS MONTH 3m 6m 9m 12m <= 3yr 5yr 10yr 15yr >= 30yr Inflation TOTAL GROSS FUNDING January ,197 4,421 7,451 4,901 3,786 8, ,425 26,876 February 556 2,125 3,925 4,430 11,036 1,087 1,548 3, ,489 18,525 March ,373 4,746 8,555 1,160 3,760 1,027 1,860 4, ,323 21,878 April ,971 4,116 8, , , ,624 14,643 May ,555 4,434 6,860 1,585 1,267 1,635 3,741 2,223 10,451 17,311 June 1, ,102 4,101 9,130 1,877 3,822 3,871 1, ,276 20,407 July ,471 4,433 7,971 2,050 3,387 7,713 2, ,316 24,288 August ,885 4,283 8,574 1,681 1, ,673 12,247 September ,726 4,477 8,270 2,011 1,652 2,756 1, ,952 17,223 October ,255 5,252 8,462 1,320 1,634 3,344 1,095 1, ,511 17,974 November ,860 4,563 8, ,517 3,337 1, ,794 16,232 December 1, ,253 4,011 8,229 1,450 2, ,533 13,761 TOTAL 100,996 16,978 25,144 41,445 12,819 15,340 7, , ,364 EIB loans MEDIUM- AND LONG TERM Percentage in 2016 medium- and long term issuance 14% 21% 34% 11% 13% 6% 1% 100% - 6 -

7 THE FUNDING PROGRAMME IN 2017 The 2017 funding programme will be very similar to the one executed in 2016, with a foreseen net issuance requirement of 35 billion euros. This net funding will be attained exclusively through medium-and long term gross issuance of billion euros, after meeting billion euros of redemptions. Just as in 2016, net issuance of Letras del Tesoro will be zero: issuance will match redemptions generated in the year. In sum, gross issuance is expected to reach billion euros, slightly below 2016 s figure. Table 3: The Spanish Treasury's funding in 2017 (effective terms, million euros) Total Net Issuance Total Gross Issuance Medium- and Long-term 1 35, ,017 Gross Issuance 1 122,904 Amortisation 1 87,904 Net Issuance 1 35,000 Letras del Tesoro 2 Forecast Strategy 2017 Gross Issuance 97,113 Amortisation 97,113 Net Issuance 0 1 Includes debt in other currencies, Bonos and Obligaciones, assumed debts, loans and other debts. 2 Redemptions of Letras, and therefore also gross issuance, will depend on the Letras issuance strategy in Regular issuance of Treasury securities The Spanish Treasury will continue to launch 12-month Letras del Tesoro regularly, reopening each of them in their 3-, 6 and 9 month tranches. In order for each Letra del Tesoro to acquire a sufficient degree of liquidity early on, standard practice is to intensify the issuance in its first and second tranches (12- and 9 months Letras) and to issue less in the last two reopenings (6- and 3 months Letras). Regular issuance, through ordinary auctions, will also be maintained for Bonos and Obligaciones del Estado with fixed coupon. These auctions will typically take place the first and third Thursday every month, as per the attached calendar. The expected amount of issuance will be within the limits announced there will be no obligation to reach the upper limit. On each occasion, issuance will take into consideration bidding and demand structure, outstanding amount of the instrument and the evolution of the Kingdom of Spain s funding needs. In 2017 the Spanish Treasury will proceed with its programme of Bonos and Obligaciones linked to European Inflation, possibly adding an inflation-linked bond to the first auction of the month. On these occasions, as per established practice, two separate ranges will be announced: one for nominal Bonos and Obligaciones and another for linked Bonos and Obligaciones

8 Non-regular issuance of Treasury securities Although regular auctions will remain the main issuance procedure, the first tranches of Obligaciones del Estado with tenors 10-year or longer will usually be issued through bank syndication. In these syndicated transactions, the Kingdom of Spain s Bonos and Obligaciones Primary Dealers sell the amount issued directly to final investors, allowing the Spanish Treasury to issue larger volumes than in regular auctions and ensuring a more efficient distribution of the security among a diversified investor base. The Spanish Treasury may summon special auctions, outside of the regular calendar, to provide liquidity in certain instruments and to improve the efficiency of the secondary market. These auctions occur exceptionally and are reserved exclusively for the Kingdom of Spain s Bonos and Obligaciones Primary Dealers. No volume range is set previously, and the amount usually issued is smaller than in regular auctions. As previously, in 2017 the Spanish Treasury will be open to issue debt through private placements, in which an instrument is issued directly to an investor, generally in the form of Medium Term Notes issued under English law. The Treasury will receive proposals from its Bonos and Obligaciones Primary Dealers according to previously established guidelines. These transactions will be considered insofar as they contribute to the diversification of the Kingdom of Spain s investor base, to the reduction of its financial burden, and to other broad objectives of the Spanish Treasury s funding strategy. SPECIAL THANKS TO PRIMARY DEALERS The Spanish Treasury acknowledges and is grateful for the key role played by its Primary Dealers in the provision of liquidity and in the distribution of Spanish Public Debt. The most active Primary Dealers for Bonos and Obligaciones del Estado in 2016 have been Banco Bilbao Vizcaya Argentaria SA, Banco Santander SA, Barclays Bank PLC, Citigroup Global Markets Limited and BNP Paribas SA. The most active Primary Dealers for Letras del Tesoro in 2016 have been Caixabank SA, Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Société Générale CIB and Morgan Stanley & CO. International PLC