It was the best of debt, and the worst of debt. While the Spanish Treasury began 2012 by raising an impressive 21 billion euros in short and long-term debt at lower costs than it had done so earlier in the year, Spanish firms and banks know that being Spanish is the main the reason for their financing troubles.
At the beginning of the year financing has happened in drips and drabs in the private fixed income market with a volume of 1.65 billion euros raised, less than the 2.83 billion raised in the first month of 2011. And financial institutions have not been able to raise funds directly at all. They are going to enter February without placing any debt in January, something that has not happened since 2008 and significantly different than last year when they raised 4 billion euros.
Declines in the primary debt markets stem from two important issues: the sovereign debt crisis and 489.2 billion euros in provisions that the European Central Bank (ECB) made available to the financial sector in December via a three-year loan. The debt crisis is hurting Spain, because it is one of the peripheral countries at the epicenter of the crisis. "There is a geographical split in Europe, and the peripheral countries are experiencing more restricted debt conditions," said Fernando García, bond director for Société Générale CIB for Spain and Portugal.
In regard to ECB provisions, they discourage banks from looking to the markets for financing because the ECB has already supplied long-term debt at costs that are lower than what investors demand right now. Because the ECB will complete another loan with the same terms on February 29, banks could get additional resources that bolster their balance sheets and help them face upcoming debt payments. Meeting these payments will make it easier for banks to get financing from the private market eventually should they need to do so.
