PUBLIC FINANCES

Spanish Treasury plans lower net debt issues for this year

Economy Ministry unit may also sell inflation-linked bonds

The secretary general of the Treasury, Iñigo Fernández de Mesa.
The secretary general of the Treasury, Iñigo Fernández de Mesa.Chema Moya / EFE

The Spanish Treasury said Wednesday it plans record gross debt issuance this year of 242.4 billion euros, up from 236.7 billion last year. However, factoring out issues to cover maturing debt, net issuance is set to fall to 65 billion euros from 71.9 billion as a result of an expected narrowing of the public deficit.

The figure includes 23 billion euros for the so-called Regional Liquidity Fund (FLA), around the same as last year.

The marked improvement in market conditions, with Spain’s risk premium now below 200 basis points, will allow the Treasury to focus on debt with longer maturities, with the amount of bill issuance targeted unchanged from last year.

The secretary general for the Treasury, Iñigo Fernández de Mesa, said 2013 was marked by a “return to normality” in the debt markets after 2011 and the first half of 2012 when yields demanded by investors shot up.

Prior to European Central Bank President Mario Draghi’s pledge to do everything within his powers to safeguard the euro and the unveiling of ECB’s subsequent new bond-buying program, the yield on Spain’s benchmark 10-year government bond was over 7 percent, a level normally deemed to be unsustainable.

Net debt issues this year are set to increase the public debt/GDP ratio to 100 percent. Fernández de Mesa said he expects this ratio to stabilize from 2015 onwards, adding that the average cost of servicing debt of 3 percent is sustainable.

Fernández de Mesa said the Treasury did not rule out bonds linked to inflation in Spain.