Spain's 10-year bond yield has fallen 108 bp this year. Just above 4%, the yield is the lowest since Q4 2010. The 2-year yield has fallen 93 bp this year. The yield is slipping through 1.70%, for the first time since Q2 2010. Recent data suggest that Spanish banks have been the featured buyers of Spanish bonds.
The Spanish government released data at the end of last week that we have poured over. These figures paint a strikingly different picture. Spanish banks have indeed bought Spanish debt, but non-residents bought even more in Q1.
Here are the key points based on data from the General Secretariat of the Treasury and Financial Policy: The data covers registered portfolios, which include repos.
1. Total Spanish debt rose from 615 bln euros at the end of 2012 to 643.7 bln at the end of Q1, a 28.7 bln euro increase.
2. Spanish credit institutions increased their holdings by 6.9 bln euros to 203.6 bln.
3. Other financial institutions, like insurance companies, pension funds and mutual funds, collectively were neither buyers nor sellers of Spanish government debt. Nor did non-financial companies or individual investors increase their exposure to government paper.
4. The government itself (which may include government pensions) boosted its holdings of its own debt by 6.1 bln euros over the course of Q1.
5. Foreign investors bought about 15.4 bln of Spanish debt in Q1. Their share of Spanish debt increased to 37.3% at the end of March from 36.5% at the end of 2012. Foreign purchases were overwhelmingly concentrated in bonds, with only a small pick-up of bills
6. Foreign purchases of Spanish bonds in Q1 were concentrated in February, when they would have a full two-thirds of the Q1 total. Foreign investors actually trimmed some holdings in March.
7. Part of the foreign appetite may be linked to the quest for yield. In addition, many international fund managers are evaluated relative to a benchmark. Worries about the sustainability of Spain's debt or the credit quality may have deterred some foreign interest. However, as yields fell from last summer, when the 10-year yield hit 7.75%, some foreign fund managers were forced into the market of risk substantial under-performance.