The Reserve Fund of the Spanish state pension system has decided to put virtually all of its eggs in the same basket by selling German, French and Dutch government debt for Spanish government debt.
According to figures compiled by Bloomberg, the fund sold 4.6 billion euros of the debt of its three European partners and bought 20 billion euros in debt issued by Spain last year as a means of helping the Treasury meet its funding requirements. As a result, a record 97 percent of the fund’s holdings take the form of Spanish government debt. Most of the purchases by the fund took place in the second half of last year.
In order to facilitate greater purchases of public debt by the Reserve Fund, the government changed the rules governing its investment decisions. It raised its maximum holding as a ratio of its total portfolio of any single security, for example 10-year government bonds, to 35 percent from 16 percent, and its holdings of total outstanding debt issued by the Treasury to 12 percent from 11 percent.
The fund ended last year with assets of 63 billion after using 7 billion to meet the pension bill, the first time it had been tapped for this purpose.