The Treasury maintains its emission forecast despite the economic deterioration | Markets

There are just over two business months left in the capital market before the end of the year and the outlook for the Spanish economy is now bleaker than it was predicted in May, when the Government announced its first economic forecasts for 2020 with the impact of the pandemic. However, the Spanish Treasury does not seem to be in a hurry to accelerate debt issuance, in a sign that it would be willing to maintain the placement forecasts launched before the summer despite the economic deterioration.

The organization headed by Carlos San Basilio in May reviewed in depth the financing program planned for the year: it increased the net issuance of 2020 by 100,000 million euros, to close to 300,000 million.

The government’s forecast was then to close the year with a 9.2% drop in GDP and a public deficit shot up to 10.3%. The economy has rebounded in the third quarter, but the arrival of a second wave of the pandemic already in September will cause a downward adjustment in these forecasts, with a decline in GDP for 2020 in double-digit territory. Rating agencies and analysis firms have already tightened their forecasts for Spain and the forecasts of a fall in GDP this year range from 13% for Funcas, 12.5% ​​for Moody’s or 11.3% for S&P. Even the Bank of Spain manages a band of economic collapse of between 10.5% and 12.6%, depending on the intensity of the outbreaks.

But This worsening of the economic outlook would not imply an increase in the net debt already forecast forfor the year. “The Treasury is calm. They made a very prudent forecast and trust that this year they will have the resources of the SURE ”, indicate market sources close to the organization. In its planning of financing needs for the year, the Treasury has already included 15,000 million euros from the European unemployment aid fund that, if this exercise is not obtained, would in any case be covered by resorting to the market.

The Treasury rcarried out conservative planning, capable of accommodating a greater deficit

This fund has allocated 21.3 billion euros to Spain, which will be received between the last quarter of this year and the first of 2021. “The Spanish Treasury has an important cushion with the SURE but if there is no first issue before October 20, it will have to resort to a syndicated issue or ordinary auctions of more volume”says one of the institution’s market makers. This first debt issuance to be carried out by the European Commission to finance the SURE program must still overcome bureaucratic procedures for its launch, although once carried out, the income is direct for the recipient countries.

The Treasury has given up on a new syndicated issue in September. “We have been surprised, there have been a couple of windows that he has not taken advantage of”, they add from an investment bank, where they also warn of the difficulty of carrying out a syndicated placement near the end of the year and therefore too close to what is usually be usual in January.

“The Public Treasury foresees debt issuances consistent with deficit forecasts of around 12% of GDP. It is seen that they are being prudent “says María Jesús Fernández, a senior economist at Funcas, who does not foresee a net debt beyond the 130,000 million already announced. “130,000 million of net issuance is already a lot, I do not think it will be adjusted upwards”, adds José Manuel Amor, an AFI expert. On the other hand, BBVA Research does foresee an increase in the need for financing between 25,000 and 30,000 million over the forecast. And the increase in debt issuance will depend on whether Spain can have or not this year the SURE funds

Goal 80% already met

I got it. The Treasury has already captured 80% of the financing needs forecast for the year as a whole, with a very similar degree of compliance in medium and long-term debt and in bills (see graph). Yesterday it made a placement of bonds and obligations for 3,829 million euros, an amount lower than the maximum forecast, at an interest below the previous auctions.

El rating. “There is no obvious effect on the rating if the Treasury has to issue more than 300,000 million this year, although it is unlikely that they will need to,” they point out from S&P, pointing to the injection that the SURE and the European reconstruction fund will entail. . The agency put the sovereign rating outlook negative in September.

Sustainability “If the structural deficit is not corrected, the Spanish debt will enter a path of unsustainability. It is essential that, before the end of the massive purchases of ECB debt, Spain present a convincing plan to reduce the structural deficit ”, they add in Funcas.

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