The Spanish Public Treasury has kicked off May's auction with a significant drop in interest rates for six and twelve-month Treasury Bills. On Tuesday, May 6, 2025, the interest awarded for these bills fell below the 2% threshold, marking a notable change in the market dynamics. Despite the declining rates, investor demand remained robust, exceeding 10.335 billion euros.
In this auction, the Treasury successfully placed 5.76757 billion euros. The auction is particularly noteworthy as it is the first one following the European Central Bank's (ECB) recent interest rate cut on April 17, which has had a direct impact on the profitability of these securities.
The marginal interest rate for six-month Treasury Bills was set at 1.954%, the lowest since October 2022, and down from 2.119% in the previous auction. In total, 1.69228 billion euros were allocated in six-month bills, against a demand of 4.10156 billion euros. Meanwhile, the twelve-month Treasury Bills achieved a marginal interest rate of 1.900%, a decrease from 2.023% in the last auction, marking the lowest rate since September 2022. The Treasury awarded 4.07529 billion euros in twelve-month bills, which also fell short of the demand that exceeded 6.23353 billion euros.
Looking ahead, the Treasury plans to appeal to the market again on May 8, 2025, with offerings of three and nine-month bills. This upcoming auction is expected to yield between 5.750 billion and 7.250 billion euros. The agency will also offer state bonds with varying maturities, including three-year bonds with a 2.40% coupon, five-year bonds at 2.70%, inflation-indexed bonds with a residual life of five years and seven months at 1.00%, and thirty-year bonds with a 4.00% coupon.
The interest rates for these upcoming bonds are projected to be 2.301% for three-year bonds, 2.687% for five-year bonds, 0.706% for the inflation-indexed bonds, and 3.693% for the thirty-year bonds. The Treasury's strategy reflects a broader plan to manage its financing needs, which are anticipated to reach around 60 billion euros for 2025—an increase of 5 billion euros compared to 2024. This increase is largely due to the necessity of funding reconstruction efforts in areas affected by the recent DANA disaster.
In total, the Public Treasury has planned 48 ordinary auctions of letters, bonds, and state obligations for this year. The increased financing needs are attributed to the higher volume of amortizations and a slight uptick in net emissions. The Treasury aims to maintain a debt maturity profile averaging around eight years, which is a historic high reached in 2021. This extended maturity has helped mitigate the impact of rising interest rates over the past few years.
As part of its ongoing commitment to sustainable finance, the Treasury will continue to issue green bonds, reinforcing its role in funding ecological transition projects. The upcoming auctions scheduled for June 3, July 1, August 5, September 2, October 7, November 4, and December 2 will provide further opportunities for investors looking to engage with government debt.
For those interested in purchasing Treasury Bills, the process involves having a valid identification document and a free securities account at the Bank of Spain. Investors can opt for online purchases through the Treasury's website or visit one of the 16 branches across Spain, with appointments available Monday through Friday from 8:00 AM to 3:00 PM.
Each Treasury Bill has a nominal amount of 1,000 euros, meaning the minimum investment must be at least this amount or a multiple thereof. Investors should note that Treasury Bills are issued at a discount, meaning they are bought for less than their nominal value, with the difference representing the yield upon maturity. For example, if a bill is purchased at an interest rate of 3%, it might be bought for 970 euros, with the Treasury returning 1,000 euros at maturity.
In summary, the recent auction results indicate a significant shift in the Spanish debt market, with lower interest rates attracting strong investor interest despite economic uncertainties. As the Treasury navigates its financing needs for 2025, the upcoming auctions will be closely watched by market participants and analysts alike, reflecting broader trends in fiscal policy and economic recovery efforts.
