Spanish banks main investors in national bonds

“Faced with the flight of foreign investors, banks are supporting sovereign debt auctions”, explains ABC, on the eve of an auction of state bonds and securities (the first to be held since the presentation of the 2013 budget), which the Spanish treasury is hoping will bring in between three to four billion euros, and demonstrate a high level of investor confidence in Spanish debt.

According to the Madrid daily, foreign investors since the beginning of this year have reduced their exposure to Spanish bonds by close to 90 billion euros, or by 31.8% in comparison with figures for 2011. For the first time since 2003, Spanish banks now hold most of Spain’s debt, notes ABC, which explains the phenomenon —

The country’s banks’ renewed interest in Spanish bonds is linked to the European Central Bank’s extraordinary provision of liquidity in December 2011 and February 2012. The banks borrowed from the ECB in Frankfurt at a rate of 1% and invested in sovereign bonds with a yield of 6%.

According to the ABC, “the markets are continuing to bet that Spain will demand a bailout from Europe and that the ECB will buy Spanish debt, in spite of reservations expressed by Germany.”