TESORO PÚBLICO FUNDING STRATEGY 2019 - Tesoro Público
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TESORO PÚBLICO
FUNDING STRATEGY 2019
»»Palacio Miramar, San Sebastián
© Turespaña
TESORO PÚBLICO
»»Palacio Real de Olite
Olite, Navarra FUNDING STRATEGY 2019
Introduction
The Spanish economy continued to grow in 2018 at a strong pace, and faster than most of the other large advanced
economies. After registering rates above 3% for several years, Spanish growth is expected to continue in the
next few years at somewhat more moderate rates, although still faster than our main Eurozone peers. Spain has
registered five consecutive years of growth, employment creation, a recovery in disposable incomes and a current
account surplus.
So far, this trend has allowed the economy to recover its precrisis levels of GDP, its pre-crisis per-capita GDP, and
two thirds of the employment lost during the crisis. Spain is not only growing, but it is growing in a more sustainable
way compared to previous cycles, given that our recovery has been based, essentially, in its improved exporting
capacity. This has resulted in six years of current account surpluses, unprecedented in Spain’s recent history.
All the above has been coupled with fiscal consolidation. In 2018 the public deficit will have fallen below the 3%
threshold for the first time in 11 years, and this will allow Spain to exit the corrective arm of the Excessive Deficit
Procedure. For 2019 the Government has reaffirmed once again its commitment to fiscal consolidation and with the
requirements of the Stability and Growth Pact. Public sector debt to GDP ratio will continue the downward trend that
began in 2014, and is estimated to close 2018 at 96.9% of GDP.
The Spanish economy currently stands on good ground to reinforce growth in a sustained – and sustainable – way
for the next few years, which is essential to continue to reduce its debt-to-GDP ratio and to continue to reduce the
unemployment rate.
The Treasury has been working in the past few years to widen and to deepen its investor base, disseminating
information on Spain’s credit, fostering the liquidity of the Spanish debt market – a feature that large institutional
investors consider critical – and maintaining a close dialogue with credit rating agencies. Recent rating upgrades
have been qualitatively significant, as they are enabling the Treasury to access certain institutional investors that
previously did not invest in Spain. As the Eurosystem gradually bows out of the Spanish debt market, other high-
quality investors are gradually pouring in, showing their confidence in the strength of the Spanish economy.
Moreover, the Treasury has been preparing its debt portfolio for a gradual rise in Eurozone interest rates. The
abundant liquidity and historically low funding costs have allowed the Kingdom of Spain to extend the average
life of its sovereign debt to 7.45 years – higher than it has ever been at year-end–, reduce the average cost of its
outstanding debt to 2.39% – again, lower than ever – while ensuring a more balanced distribution.
The year 2019 carries important challenges: political uncertainty in Europe, Brexit, the end of net asset purchases by
the Eurosystem and possible trade disputes at a global level, among others. The Treasury faces this scenario with
the confidence that the strong Spanish fundamentals give and with a transparent and predictable issuance strategy.
2
TESORO PÚBLICO
»»Palacio Nacional de Montjuïc
Barcelona FUNDING STRATEGY 2019
The Spanish Treasury’s funding in 2018
In 2018, the Treasury has reduced gross issuance to 212.964 billion euros and net issuance to 34.277 billion euros,
5.723 billion euros less than the net issuance forecasted last January. The reduction in net issuance has been
possible thanks to a favorable budgetary execution and to more efficient cash management, among other things. Of
the total gross issuance, 80.984 billion euros were obtained through the issuance of Letras del Tesoro and 131.979
billion through the issuance of medium and long-term instruments.
Table 1: The Spanish Treasury’s funding in 2018 (effective terms, billion euros)
End 2017 Forecast Strategy 2018 End 2018
Total Net Issuance 45.031 40.000 34.277
Total Gross Issuance 45.031 220.145 212.964
Medium- and Long-term ¹
Gross Issuance² 139.462 126.310 131.979
Amortisation 90.903 81.310 89.310
Net Issuance 48.559 45.000 42.669
Letras del Tesoro
Gross Issuance 94.439 93.835 80.984
Amortisation 97.966 98.835 89.377
Net Issuance -3.528 -5.000 -8.393
¹ Includes Bonos and Obligaciones, debit in other currencies, assumed debts, loans and other debts.
² Includes one loan signed with the European Investment Bank (EIB) for 257 million euros.
The bulk of 2018’s gross issuance (185.825 billion euros, equivalent to 87.3% of gross issuance) was obtained
through regular auctions carried out by the Treasury throughout the year. 12.6% of the funding programme (26.882
billion euros) was covered through syndication, and the remaining 0.1% of the program (257 million euros) was
obtained through a loan signed with the European Investment Bank.
The Treasury held 46 auctions, 22 of Bonos & Obligaciones del Estado and 24 of Letras del Tesoro. The bid-to-
cover ratio, which measures the relationship between the amount of Treasury securities demanded and the amount
issued, went up from an average of 2.19 in 2017 to one of 2.49 in 2018.
Regarding syndications, in 2018 the Treasury launched four new Obligaciones del Estado through this issuance
technique: two 10-year Obligaciones del Estado, one 30-year Obligación del Estado and one 15-year Obligación del
Estado linked to inflation in the Euro Area.
3
TESORO PÚBLICO
»»Palacio de Nava
Santa Cruz de Tenerife, Islas Canarias FUNDING STRATEGY 2019
The most salient aspects of the Treasury’s funding in 2018 include:
1. The improvement of the Spanish rating. Throughout 2018 the four rating agencies considered by the Eurosystem
have upgraded the Kingdom of Spain, granting the Treasury access to a broader investor base.
2. Early redemptions of the Kingdom of Spain’s loan from the European Stability Mechanism. In 2018 the quantity
redeemed early amounted to 8 billion euros, a sum that is equal to the combined early repayments of the previous
three years. This has allowed to reduce the outstanding amount of the loan to 23.721 billion euros, 57.4% of its
original volume. Aside from sending a strong signal to the market regarding the financial autonomy of the Kingdom
of Spain, early redemptions benefit taxpayers, as market financing at this tenor is currently cheaper than holding
this loan.
3. A new contribution from the State to the Social Security system for an amount equal to 13.830 billion euros.
2018’s contribution to the Social Security system was slightly bigger compared to 2017, when it amounted to 10.192
billion euros, but this increase did not prevent the Treasury from reducing its funding programme.
4. The significant issuance at the long end of the curve (Chart 1). 2018 was the year with the largest issuance in
maturities over 30 years and the Spanish Treasury was, in fact, the most significant European issuer in the long end
of the curve. At the same time, net issuance of Letras del Tesoro in 2018 was negative for 8.393 billion euros.
Chart 1: Marginal life at issuance of Bonos & Obligaciones
(in percentage)
11 15
13 13
39 37
23 21
13 14
4
TESORO PÚBLICO
»»Palacio de San Telmo
Sevilla, Andalucía FUNDING STRATEGY 2019
This effort has pushed the average life at issuance of Bonos & Obligaciones up to 11.7 years (Chart 2), and the
average life of the entire debt stock to 7.45 years (Chart 3), in both cases all-time highs, which reduces refinancing
risk and makes the Treasury less vulnerable to a potential rise in Eurozone interest rates.
Chart 2: Average life at issuance of Bonos & Obligaciones Chart 3: Average life of debt outstanding (in years)
(in years)
Issuing more intensively in longer tenors has not translated into a substantial increase of the cost of debt. The average
cost of debt at issuance in 2018 stood at 0.64%, very similar to the historic low of 0.61% reached in 2016. One of the
contributing factors is the fact that, once again, all of the Letras del Tesoro auctions held during the year were allocated
at negative rates, that were on average of –0.39% (versus -0.36% in 2017). The average cost of debt outstanding, for its
part, followed its downward trend and closed 2018 at 2.39%, once again an all-time low (Chart 4).
Chart 4: Average cost of debt
(in percentage)
5
TESORO PÚBLICO
»»Palacio Ducal de Lerma
Lerma, Burgos FUNDING STRATEGY 2019
The past year has also been transitional with respect to the investors’ and rating agencies’ perception of the Spanish
credit. In this regard, the four rating agencies relevant for the Eurosystem have upgraded Spain in 2018. These
rating upgrades have been qualitatively significant, as they have enabled a pool of saving that previously did not
invest in Spanish debt to start doing so. The increased diversification of the Treasury’s investor base has allowed it
to reduce the percentage of Spanish debt in the hands of Spanish banks to the current 16,9%, thus weakening the
mutual dependence between the Spanish sovereign and its domestic banking sector, and to increase the weight of
nonresident investors up to 44,8% (Chart 6).
Chart 5: Holdings of Letras and B&O del Estado Chart 6: Holdings of Letras and B&O del Estado
(in percentage) (in percentage and euro million)
100%
50%
0%
Non-resident Bank of Spain Spain ex. Bank of Spain
Source: Bank of Spain Source: Bank of Spain
Finally, the Treasury has reaffirmed in 2018 its commitment to the inflation-linked bond programme. In 2018 the
Treasury issued 12.458 billion euros of linkers, equivalent to 9.4% of its total medium and long-term issuance (versus
8.9% in 2017 and 6.5% in 2016) and the highest issuance since the launch of the programme in 2014. In four years,
the linker programme has reached a total volume of 55.516 billion euros, equivalent to 5.3% of the total debt
outstanding, a number in line with that of Germany (5.9%) but still below that of countries such as France (7.6%) and
Italy (7.1%).
The objectives of the linker programme include, on the one hand, the diversification of our investor base, as these
products grant access to investors that have a particular interest in holding assets that protect them against inflation;
and on the other hand, the stabilization of the debt interest burden, as linkers allow to match the inflation-linked
liabilities to the tax revenue, which is also linked to inflation.
6
TESORO PÚBLICO
»»Palacio de la Aljafería, Zaragoza
© Turespaña FUNDING STRATEGY 2019
The Spanish Treasury’s funding in 2019
The Government’s commitment to fiscal consolidation will allow the Treasury to continue to reduce its recourse to
the capital markets in 2019. Therefore, in the year ahead the Treasury expects to obtain a net issuance of 35 billion
euros, 5 billion euros less than the initial forecast for 2018. This sum will be used to cover the financial needs of
the central Government which comprise, among others elements, a lower deficit, a lower funding from the central
Government to the regions, in line with the gradual recovery of their financial autonomy, and the granting of a larger
contribution to the Social Security system.
This net funding will be attained exclusively through the issuance of medium and long-term instruments. Given that
there are medium and long-term redemptions of 91,933 million euros, gross medium and long-term issuance will stand
at 126.933 billion euros, 3.8% less than in 2018. Letras del Tesoro net issuance will be zero, so gross issuance will be
equal to redemptions, which are expected to amount to 82.592 billion euros. All in all, gross issuance will be 209,526
million euros, 1.6% less than that of 2018. Since 2012 net issuance has been reduced by 64.5% and gross issuance has
been reduced by 14.7% (Chart 7).
Table 2: The Spanish Treasury funding in 2019 Chart 7: Funding programmes since 2012
(effective terms, billion euros) (in euro billion)
Forecast
End 2018
Strategy 2019
Total Net Issuance 34.277 35.000
Total Gross Issuance 212.964 209.526
Medium- and Long-term¹
Gross Issuance¹ 131.979 126.933
Amortisation ¹ 89.310 91.933
Net Issuance¹ 42.669 35.000
Letras del Tesoro²
Gross Issuance 80.984 82.592
Amortisation 89.377 82.592
Net Issuance -8.393 0
¹ Include Bonos and Obligaciones, debt in other currencies, assumed
debts, loans and other debts.
² Redemptions of Letras, and therefore also gross issuance, will
depend on the Letras effective issuance throughout 2019.
7
TESORO PÚBLICO
»»Palacio Real de La Almudaina
Palma de Mallorca, Islas Baleares FUNDING STRATEGY 2019
In 2019 we do not foresee to continue increasing the average life of debt outstanding at the same rate of the last
years, but we do expect the average cost of debt outstanding to continue falling, despite the anticipated increase in
interest rates. All in all, we expect the interest burden as a percentage of GDP to continue falling, as has been the
case the last few years (Chart 8). In the same way, the debtto-GDP ratio will continue falling, closing 2019 slightly
below 96% (Chart 9).
Chart 8: Interest burden Chart 9: Debt-to-GDP ratio
(as a percentage of GDP)
*Forecast *Forecast
Regular issuance of Treasury securities
In 2019, the Treasury will obtain the bulk of its funding through regular auctions of Letras del Tesoro and Bonos &
Obligaciones del Estado. The exact dates of the 48 regular auctions of Letras del Tesoro and Bonos & Obligaciones
del Estado scheduled are included in the annex to this document.
Letras’ auctions will continue to take place twice a month: 6 and 12-month Letras will be issued in the first auction of
each month, and 3 and 9-month Letras will be issued in the second. 12-month Letras are later re-opened as 9, 6 and
3-month Letras, and so issuance of the 12-month Letras will be usually higher in order to provide enough liquidity
to the new reference. In the current low interest rate environment the liquidity of the market for Letras del Tesoro is
of great importance to investors.
8
»»Palacio Municipal de La Coruña
TESORO PÚBLICO
La Coruña, Galicia FUNDING STRATEGY 2019
Regular auctions of Bonos & Obligaciones del Estado with fixed coupon will also continue to take place twice a
month. As has been the case since the onset of the inflation-linked programme, one reference linked to Euro Area
inflation may be added to the first Bonos & Obligaciones auction of each month. In this case, two distinct size ranges
will be announced, one for nominal Bonos & Obligaciones and another for inflation-linked Bonos & Obligaciones.
On the Friday before each Bonos & Obligaciones auction the precise securities to be auctioned will be announced,
and on the Monday of the auction week the expected issuance range will be published. There will be no obligation
to reach the upper limit, and the amount finally issued will depend on bidding, demand structure, outstanding
amount of each instrument and the evolution of the Kingdom of Spain’s funding needs.
Non-regular issuance of Treasury
In 2019 the Treasury expects to keep using syndications as a method of issuing debt. Syndications have been used
in recent years to issue the first tranche of new Obligaciones del Estado with a tenor equal to or greater than 1o
years, and they are especially interesting for the issuance of new references given that they allow more sizeable
volumes tan regular auctions, while ensuring the distribution of the securities among a diversified investor base.
Moreover, the Treasury may summon special auctions outside of the regular calendar. These auctions are reserved
exclusively for the Kingdom of Spain’s Primary Dealers in Bonos & Obligaciones del Estado and aim at providing
liquidity to certain references, thus improving the functioning of the secondary market. The amount issued in these
auctions, which are carried out without an announced issuance objective, is usually much lower than that issued in
regular auctions.
Finally, the Treasury may issue debt through private placements, in which an instrument is sold directly to an
investor. Private placements will be made in response to proposals from investors, who should channel them
through the Primary Dealers in Bonos & Obligaciones del Estado. They will be executed as long as they contribute
to the diversification of the Treasury’s investor base, to the reduction of its financial burden, and only if they match
Treasury’s broader strategic objectives.
9
»»Palacio de Soñanes,
TESORO PÚBLICO
Villacarriedo, Cantabria
© Turespaña FUNDING STRATEGY 2019
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 & Obligaciones del Estado in 2018 have been HSBC France, Banco
Bilbao Vizcaya Argentaria SA, JP Morgan Securities, Barclays Bank PLC and Citigroup Global Markets Limited.
The most active Primary Dealers for Letras del Tesoro have been Banco Bilbao Vizcaya Argentaria SA, Société
Générale CIB, Crédit Agricole CIB, Goldman Sachs International and JP Morgan Securities.
Annex: Macroeconomic Scenario of the
E
2018 2019
Real GDP 2,6 2,2
Private consumption 2,3 1,7
Public consumption 1,9 1,4
Gross Fixed Capital Formation 5,7 4,4
Exports 2,4 2,8
Imports 3,5 3,1
National demand (*) 2,9 2,2
External demand (*) -0,3 -0,1
Nominal GDP 3,6 3,8
GDP deflator 1,0 1,7
Unemployment rate (%) 15,5 14,0
Year-on-year growth rates unless otherwise specified
(*) Contribution to GDP growth
10»»Palacio Real de Madrid
TESORO PÚBLICO
Madrid FUNDING STRATEGY 2019
2019 Auction Calendar
january february march
M T W T F S S M T W T F S S M T W T F S S
1 2 3* 4 5 6 1 2 3 1 2 3
7 8 9 10 11 12 13 4 5 6 7* 8 9 10 4 5 6 7* 8 9 10
14 15 16 17 18 19 20 11 12 13 14 15 16 17 11 12 13 14 15 16 17
21 22 23 24 25 26 27 18 19 20 21 22 23 24 18 19 20 21 22 23 24
28 29 30 31 25 26 27 28 25 26 27 28 29 30 31
april may june
M T W T F S S M T W T F S S M T W T F S S
1 2 3 4* 5 6 7 1 2 3 4 5 1 2
8 9 10 11 12 13 14 6 7 8 9* 10 11 12 3 4 5 6* 7 8 9
15 16 17 18 19 20 21 13 14 15 16 17 18 19 10 11 12 13 14 15 16
22 23 24 25 26 27 28 20 21 22 23 24 25 26 17 18 19 20 21 22 23
29 30 27 28 29 30 31 24 25 26 27 28 29 30
july august september
M T W T F S S M T W T F S S M T W T F S S
1 2 3 4* 5 6 7 1* 2 3 4 1
8 9 10 11 12 13 14 5 6 7 8 9 10 11 2 3 4 5* 6 7 8
15 16 17 18 19 20 21 12 13 14 15 16 17 18 9 10 11 12 13 14 15
22 23 24 25 26 27 28 19 20 21 22 23 24 25 16 17 18 19 20 21 22
29 30 31 26 27 28 29 30 31 23 24 25 26 27 28 29
30
october november december
M T W T F S S M T W T F S S M T W T F S S
1 2 3* 4 5 6 1 2 3 1
7 8 9 10 11 12 13 4 5 6 7* 8 9 10 2 3 4 5* 6 7 8
14 15 16 17 18 19 20 11 12 13 14 15 16 17 9 10 11 12 13 14 15
21 22 23 24 25 26 27 18 19 20 21 22 23 24 16 17 18 19 20 21 22
28 29 30 31 25 26 27 28 29 30 23 24 25 26 27 28 29
30 31
january 2020
M T W T F S S Bonos y Obligaciones del Estado auction
1 2 3 4 5
Letras del Tesoro auction
6 7 8 9* 10 11 12
13 14 15 16 17 18 19
*Could include inflation-linked Bonos & Obligaciones
20 21 22 23 24 25 26 1 Target holiday
27 28 29 30 31
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