They had all the necessary paperwork for converting to products that were more damned by the sovereign debt crisis that is now trying to halt global economy policy. But nothing is farther from the truth. Right now, treasury funds, which invest at least 70% of their assets in Spanish national debt, are sitting pretty.
Up until August 5, the majority piled up loss after loss, but recent purchases of sovereign debt carried out by the European Central Bank (ECB) have transformed one of the year's most feared fixed income products into one of its most lucrative.
In fact, according to Morningstar, since August 5 average yields of 1.22% have been noted and some even offer yields around 3% for 3-month notes. These are similar to average yields on 1-year deposits, which are the most-favored products for investors. Further, contrary to all predictions, only three of thirty-three treasury funds that exist in Spain have accumulated losses in 2011.
Not in vain, one has to keep in mind that these products not only calculate their yields by pro-rating yields of coupons in which they are invested (where yields are around 2.88%), but that they also base their liquid value on the developments that their issues take on the secondary market. It is in this latter valuation that the ECB has taken a clear leadership role. Its purchases of peripheral debt, which are greater than 170 billion euros, have elevated prices and therefore the yield of Spanish 10-year notes. Because yields rise when prices fall, it has descended from 6.04% to 5.54%.