A week after the monetary normalization process by the ECB took a turn and reported a fifth consecutive rate hike, the Treasury took advantage of frantic activity in capital markets at the start of the year to execute the first syndicated issue of 2023. Spain raised 13,000 million yesterday in 10-year bonds with a coupon of 3.15%, the highest since 2014.
Although financial conditions are not as loose as they have become in recent years and financing costs are rising as interest rates rise, investors continue to trust the Spanish economy. The appetite they show for Spanish papers is the best example of this. There has been a huge demand since the first hour. At the opening of the books, purchase orders exceeded 55,000 million, an amount which reached 86,133 million at the closing. In other words, the coverage ratio reaches 6.6 times the offer.
As for the amount disbursed, the registered demand is the second highest in the institution’s history, a sign that shows good access to capital markets despite rising cost of funding. The April 2020 issue still holds the record for the amount and purchase orders. A week after the ECB announced an anti-pandemic asset purchase program (PEPP), Spain placed 15,000 million in 10-year loans with a demand for 97,000 million euros. While this is not the highest demand for the Treasury in its history, it did manage to win the medal for the operation with the highest number of buy orders among all syndicated operations executed by European sovereigns so far this year.
Investors’ interest was used to reduce the cost of the issue. The operation opened with a spread of 12 basis points in Spanish terms with a maturity of one decade and is closed with a spread of 10 basis points, which equates to a return of 3.17%.
The demand was distributed among 406 investment accounts, which were very diverse both geographically and by type of investor. Non-resident participation reached 89.8%, the highest in previous issues. By nationality, the British and Irish stood out with 26.7%, followed by the French and Italians (11.8%). Asian countries, which are characterized by investing in high quality assets, accounted for 3.5%. By type of investor, fund managers (36.9%) stood out, followed by bank treasuries (26.9%) and official institutions (13%).
BBVA, Citi, Crédit Agricole, JP Morgan and Santander were the placement entities.
This syndicated issue is the first step towards meeting funding targets for 2023, for which the Treasury has projected net issues of 70,000 million euros, compared with 70,063 million registered last year. For its part, the net issue will reach 256,846 million, up 10% compared to 2022. Syndicated issues are operations that are carried out outside the calendar and in which the Treasury hires an army of banks to execute them. So far this year, €32,000 million has been released, 14.1% of the medium and long-term financing programme. The average life of the loan portfolio reaches 7.95 years and the average cost of the loan portfolio reaches 1.728% by the end of 2022.
In 2022, a year marked by the end of zero rates in the euro area, Spain carried out four operations, with which it captured 30,000 million. A second placement in the same period was added to the traditional 10-year issue in July through early January. In February, before the war in Ukraine closed capital markets, Spain sold 10,000 million in 30-year bonds. After seven months and two ECB rate hikes, it placed 5,000 million in debt maturing in 2042 at 3.45%, which was due in 2020.