The Treasury reviews its financing program to deal with the COVID-19 crisis

21 from May 2020.- The global health crisis caused by the COVID-19 virus is having important economic consequences that make it necessary to update the financing needs of the Treasury. In particular, the Government has put in place various measures to alleviate the economic and social consequences of this crisis. These measures entail higher costs than those foreseen by the State at the beginning of the year, to which we must add a lower income as a result of the economic contraction.

Faced with this new scenario, the Public Treasury estimates a need for gross financing for 2020 of 297,657 million euros, of which 185,969 million is expected to be financed through Bonds and Obligations and 111,688 through Treasury Bills.

This figure corresponds to net financing needs – discounting current year’s amortisations – of EUR 130 billion, of which 77.7% (EUR 101 billion) will be obtained through medium and long-term emissions and 22.3% (EUR 29 billion) with short-term instruments.

As soon as the health crisis broke out, the Treasury began to accelerate its emissions, so it has already financed 143,491million euros in the market, 48.6% of the new target established for 2020, of which 101,738 million have been in the medium and long term (54.9% of the target) and 41,753 million euros have been in Letras (37.9% of the target). The rapid response is allowing the implementation of the new Treasury financing program, in the medium and long term, to be more advanced than in 2019 at these same dates.

The Treasury has introduced different measures to manage this increase in financing needs in the most efficient way, such as increasing the average size of auctions and contemplating the possibility of convening special auctions –out of calendar– of Bonds and Obligations. On the other hand, the banking syndication procedure has been used to a greater extent for the issuance of the first tranches of new references.

In this regard, the Treasury was a pioneer with the issuance of a seven-year reference on March 24, which has subsequently been followed by many other European sovereign issuers. Especially noteworthy is the syndication carried out in April, when a new 10-year bond was issued for 15 billion euros, the largest amount issued in a reference in the history of the capital market. In addition, the record of demand received by any public or private issuer was obtained for a single reference, exceeding 96.5 billion euros. This Obligation was issued with a coupon of 1.25%, 20 basis points below the first 10-year reference issued in 2019, and earned a non-resident investor share of 79%.

Despite the increase in financing needs and global financial volatility, the average cost of new emissions so far this year is 0.31%, while the average cost of debt in circulation continues to contract and stands at an historic low of 2.02%. All this has been possible while increasing the average life of the State debt portfolio to maximum levels, currently standing at 7.74 years.

The annual interest burden of the Public Administrations as a whole has fallen by almost 7 billion euros since 2013, going from 35,405 million to 28,450 million euros at the end of 2019.

In 2019, the interest burden ratios in relation to GDP (2.2%) and in relation to Public Administration revenues (5.8%) were at the same levels as in 2004. Therefore, and despite the greater indebtedness of the last 15 years, the effort required to attend to the payment of interest is the same.

The effort of recent years to broaden and deepen the investment base has borne fruit and non-resident investors already hold 50.4% of the State Debt in circulation. Despite the higher emission, the coverage ratio of the auctions has risen, especially in the longer tranches.