The latest interest rate cut by the European Central Bank (BCE) has significantly impacted the Spanish Treasury's first auction of six and twelve-month bills held on May 6, 2025. The profitability of these bills has fallen below 2%, marking a notable shift in the investment landscape. This latest auction saw the Treasury awarding an interest rate of 1.954% for six-month bills and 1.900% for twelve-month debt, the lowest rates recorded since the autumn of 2022. The auction attracted a placement close to 5.770 million euros, with demand exceeding 10.335 million euros, indicating a robust interest from investors despite the declining yields.
In detail, the Treasury successfully placed 1.692 million euros in six-month bills, receiving a demand of 4.101 million euros. The interest rate for these bills was a drop from the previous auction's 2.119%, marking its lowest level since October 2022. Similarly, the twelve-month bills captured 4.075 million euros, with a demand of 6.234 million euros, and their interest rate fell from 2.023% to 1.900%, reflecting a trend seen since September 2022.
This reduction in profitability is part of a broader trend following the BCE's seventh rate cut on April 23, 2025, which adjusted the deposit facility to 2.25% and the refinancing rate to 2.4%. Market analysts anticipate further cuts, potentially bringing rates down to between 1.75% and 1.5%. The BCE's upcoming auction on May 8 is expected to attract between 5.750 and 7.250 million euros, offering various state bonds with different maturities.
Investors are now weighing their options more carefully, as the allure of Treasury bills diminishes in favor of fixed-term deposits that offer higher returns. For instance, the Portuguese Banco BiG is currently offering a 3% annual percentage yield (APY) for six-month deposits. A 10,000 euro investment at this rate would yield approximately 150 euros gross at maturity, compared to the less than 100 euros guaranteed by the Treasury bills over the same period.
Several banks are providing competitive rates on fixed-term deposits. Banca Progetto in Italy offers a 2.61% APY for six-month deposits, while Haitong Bank provides a 2.52% APY under similar investment conditions. In the twelve-month category, Mano Bank and SME Bank in Lithuania are offering 2.70% APY, which translates to about 270 euros gross after a year for a 10,000 euro investment. This is significantly higher than the 190 euros that would be earned through the Treasury’s twelve-month bills.
As the market shifts, the Spanish Treasury is expected to continue its strategy of issuing debt while navigating lower interest rates. The financing program for 2025 anticipates new financing needs of approximately 60 billion euros, an increase of 5 billion euros compared to 2024. This adjustment is largely driven by the need to finance economic recovery efforts in areas affected by recent climatic events.
Despite the lower yields, demand for Spanish Treasury securities remains strong. The Treasury's strategy includes conducting 48 ordinary auctions throughout 2025, ensuring a steady flow of investment opportunities. The agency is also committed to diversifying its offerings, including the issuance of green bonds to support ecological transition projects.
In summary, the recent auction reflects a significant turning point in the Spanish debt market, where lower yields on Treasury bills have prompted investors to explore more lucrative alternatives in the fixed-term deposit sector. As the economic landscape continues to evolve, both investors and the Treasury will need to adapt to the changing dynamics of interest rates and market demands.
