EXCLUSIVE: Spain DMO Head: ‘Well enough advanced in our programme that we don’t need a fourth syndication’

1 July 2022

EXCLUSIVE: Spain DMO Head: ‘Well enough advanced in our programme that we don’t need a fourth syndication’
- Spain DMO head: Tax revenues increasing very significantly, so funding needs declining
- Spain DMO head: Expect our greenium to settle at around three to four basis points

By David Barwick – FRANKFURT (Econostream) – The Spanish sovereign is far enough along in its funding efforts this year so as not to need a fourth syndication, although the decision whether or not to forego it has yet to be made, according to Pablo de Ramón-Laca Clausen, General Director of the Tesoro and Financial Policy, Spain’s sovereign debt issuer.

In an interview with Econostream this week (see transcript here), de Ramón-Laca said that the Spanish Treasury would ideally be issuing more green bond, but has to contend with green issuance to fund the Next Generation EU recovery fund.

The premium on Spanish green sovereign debt should subside from the seven basis points reached in the second auction tapping the bond after last year’s initial issuance to around three to four basis points, he said.

‘This year we have unusual uncertainty’, he said when asked if there were plans to cut the funding target around July, as had been the norm in recent years. ‘On the one hand, our tax revenues are increasing very significantly, so funding needs decline as a consequence of that.’

On the other hand, Next Generation EU money was now flowing, and various public policy measures had been implemented to counter the impact of inflation, he said.

‘So, we are considering how much we’re going to need, and on the basis of that analysis we will decide whether to reduce our funding target’, he said. ‘In any case, we are almost two-thirds of the way there. … So, we’re making very good progress and are more advanced than we were last year before we announced the decrease in our issuance target. That means we have the additional flexibility to see what we do with our funding.’

Usual practice for the Kingdom of Spain is to do around four syndications a year, and three have already been done, he noted.

‘We’re well enough advanced in our programme that we don’t need a fourth syndication’, he said. ‘We will decide, based on market conditions, whether it would be advantageous and whether demand is there, after the beginning of the tightening of monetary policy. But we are in a position to decide not to do it, because we’ve been issuing strongly even throughout this recent bout of volatility.’

The Treasury would ‘definitely’ continue tapping its current green benchmark, he said, being limited in how much new green bond it can issue.

‘We’re not issuing as much green bond as we would like to or as the market demands, because Next Generation EU is issuing a lot, backed by projects within our budget’, he said.

This explained the ‘very significant greenium’ of seven basis points most recently, he said.

‘We think seven basis points is on the high side, as greeniums go, but we think it will settle at around three to four basis points’, he said.

De Ramón-Laca indicated that he was comfortable with the idea that average book size would return to pre-Covid levels as the ECB ceased to conduct net asset purchases under the asset purchase programme.

‘That’s what we’re seeing, and it really isn’t a problem’, he said. ‘You don’t need a particularly big book, though, you just need a very high-quality book of a certain size. There’s no point in having a €130 billion in your book, some of which is just fluff from hedge funds, if you’re only going to issue €10 billion. So huge books can be burdensome. So, I think it’s a welcome thing that we go back to more real money investors and smaller books, because that makes our job of allocating the bonds easier.’