Foreign investors pile into Spanish sovereign debt

Foreign investors’ holdings of Spanish government bonds and bills increased by a record of almost 21 billion euros in November to 273.172 billion, the biggest figure in absolute terms since 2011, according to the latest Treasury figures.

As a result of increased investor confidence, in relative terms foreigners’ holdings of sovereign debt increased by three percentage points to over 40 percent, a level last seen in the middle of 2012.

The main driving force behind this development is the liquidity provided to lenders by the main central banks and the search for higher-yielding debt instruments, which has particularly favored euro-zone peripheral countries such as Spain.

Foreigners’ renewed appetite for Spanish sovereign debt pushed the average yield paid by the Treasury last year down to 2.45 percent, half a percentage point below the levels of 2012, and the second-lowest level after the 2.15 percent paid in 2009.

However, the impact of this in savings for the government in terms of interest payments was offset by the absolute increase in outstanding public debt to close to one trillion euros. The average yield on all outstanding debt fell to 3.73 percent from 3.90 percent a year earlier.

Despite the increase in confidence, foreign holdings of Spanish sovereign debt remain well below the record 54.8 percent of the total registered in 2010. In that year, Spanish banks held only 12 percent of total outstanding bonds and bills, but that figure had increased to 33.8 percent in the first half of 2008, the highest level since 1995.