• Savings From 15 to 10,800 million in a year: families treasure 10.4% of total Treasury Bills

In the middle of a year of electoral promises, neither the Government nor the autonomous communities seem willing to reduce public spending in their particular race for the vote of the Spaniards. The objective for 2023 is to go out and look for another 70,000 million euros of financing in the market, an amount similar to that of 2022, although interest expense is expected to be about 5,500 million euros higher, in light of the continued and unprecedented rise in interest rates in the z

Ona euro. This excess for interest payments will be similar to last year, when the bill for this concept went from 26,000 to 31,600 million euros.

Funcas' forecasts raise spending by approximately another 4,000 million euros for 2024, so that in two years,

Spain must pay 10,000 million euros more for the payment of interest on its debt, to exceed a total of 40,000 million euros charged to next year

, where it also affects greater financing needs, in addition to the cost of asking for money in the market. "The most we have ever paid in current terms was in 2013, when the


amounted to 36,600 million, although in relation to the

GDP [Gross Domestic Product]

was more, 3.6%. In 2024 these nearly 40,000 million euros will represent 2.7% of the economy, "says María Jesús Fernández, senior economist at the Savings Banks Foundation. In absolute terms, it means that Spain will pay 26% more interest in 2024 compared to what was disbursed last year and will rise to 54% compared to 2021.

The Government's forecasts are somewhat more optimistic. According to the latest Stability Program sent to Brussels, the Ministry led by Nadia Calviño estimates that interest payments on GDP will remain stable at a rate of 2.4% this year, reaching 2.6% in 2024, 2.7% in 2025 and up to 2.9% in 2026. Economía also gives figures on the impact that a 120 basis point increase in interest rates could have on the cost of financing on the base scenario they contemplate. If it occurs, it would mean that interest payments would rise to 2.5% of GDP in 2023, and exceed 3% in 2025 (0.5 percentage points more).

"In Spain, where a recession is not expected as it happens in Germany or the United States, it is rather a problem of the level of spending taking into account that it is the country that has increased its debt the most compared to the rest of the euro area and that it will increase the State coffers the most," says Jorge Ceballos, head of Fixed Income at Beka Finance. Through a pandemic, the Executive of Pedro Sánchez triggered the public debt in 2020 (to levels of the financial crisis in 2009) by issuing almost 110,000 million euros. Since then, and with the forecast for 2023, the Treasury will have captured 325,000 million in four years, 2.4 times more than the previous four-year period, from 2016 to 2019.

Financing, 2.3 points more expensive

The reason behind this rise is

the significant increase in new Treasury issues

which, gradually, will drain into the average rate that the State must assume to finance itself. In May 2022, the average effective percentage of new placements in the market was slightly below 1% (specifically, it was 0.997%). In April of this year that same cost rose to 3.32%, which implies

about 230 basis points more

. In the specific case of 10-year bond placements, which are taken as a reference to measure the health of economies, this has evolved from 2.05% twelve months ago to 3.46% today. And it will be higher in May, as it is currently trading above 3.52%.

But the translation of the rate hike only spreads to new issues, while the average rate of the public debt portfolio remains relatively controlled at 1.88% in April. This figure mostly includes past issues when Spain was financed at zero cost practically with negative deposit rates. In any case, the increase in financing costs is already beginning to be noticed, which has raised the average rate by about 30 basis points, compared to April last year. If these data are broken down, the coupon paid by the

Treasury Bills

has evolved from -0.52% twelve months ago to the current 2.004%, according to the latest report prepared by the Public Treasury. With regard to bonds, in general terms, their financing has gone from being at rates of -0.019% to 0.425%. It should be borne in mind that bonds are issued for longer periods than short-term bills, so the decalage of the new context of rates in the euro area will take time to be transferred to the cost of financing as the issues mature and the State is forced to renew them at a higher cost.

And this plays in Spain's favor. The average maturity portfolio is slightly below 8 years and has remained stable in recent times. What does this imply? Basically, that

each year that passes the Treasury is only obliged to renew just under 13% of the total gross debt issued

, hence the average rate of financing of the Treasury, between bills, bonds and obligations, is still at 1.9%. In 2023, of the 70,000 million projected emissions, it has only covered 20,500 million, 29% of the total. And this is an anomaly compared to what had been usual and the best proof that the rate hike is already weighing. "In the first four months of the year, in the period 2019-2021, the Treasury placed between 40% and 50% of its net issuance," says Javier Pino, of Afi, who believes that "the pressure could continue (...) Even more so with an ECB that from July will almost double the non-reinvestment of maturities (going from 15,000 million euros per month to an estimate of about 27,500 million euros," he concludes.

The market understands that it will exceed the 2% barrier by the end of the year


something that has not happened since 2019

, prior to the pandemic when governments and community institutions came together to relax lending conditions and provide liquidity to the system during the temporary closure of their economies.

And, in the midst of all this situation, the European Central Bank (ECB) highlights how

Spanish households are, of all the countries of the euro zone, the ones that have suffered the most from the increase in interest on their loans

, of up to 1 percentage point in its comparison from the end of 2021 to February of this year, followed by Italy, with 0.4 points. In the case of companies, Italian companies are the most affected. They already pay 5 percentage points more for their loans, followed by the Spanish ones, with an increase close to 3 points.

Refinance one-third of the debt

Almost a third

(28%, in particular)

of the debt issued by the State matures before the end of 2025

for a total of 370,000 million euros, including bills, bonds and obligations. This year alone, the Treasury will have to refinance 8% of the total; and half of all its debt until 2028, in the next six years. But it doesn't necessarily have to be negative. It should be borne in mind that the State still pays coupons higher than the current issuance cost, prior to the outbreak of Covid and that came from the time of the financial crisis of 2012-2013.

For example, in October of this year a ten-year obligation worth 21,073 million euros (issued in 2013) matures that pays an annual coupon of 4.4%, 100 basis points above the current cost of financing. The next maturity of bonds is in January 2024 (issued in September 2008) for which the State pays a coupon of 4.8%. Where you will notice it will be in the refinancing of the short sections, the bills and bonds. In May 2018 it issued a five-year bond that will mature in July, for which it pays 0.35%. The current cost of financing is 3.26%.