Patriotism is not just for the Americans. Nor is it something exclusive to the French. The Spanish have been pulling out their red and yellow flags during a sovereign debt crisis that, even though it blew up in Greece, has splattered other peripheral countries throughout the Mediterranean. But as the experts tend to say, with great crisis comes great opportunity. This slogan might be behind Spanish fund managers' strategy for investing in Spanish sovereign debt.
After years of exile (before 2012 we must look back to 2009 to find the startup of a fund that invested exclusively in Spanish national debt) Spanish treasury funds are back, whether in a guaranteed form or not. It looks like Spanish funds had had cornered the market for Spanish debt thanks to the carry trade that they received through their banks (they are receiving three-year loans at 1% interest and buying five-year debt at 5% interest). This is the only way to explain how 29 new investment funds have registered with the CNMV so far in 2012, seven in particularly investing the majority of their assets in Spanish debt, which means that 24.13% of all the new funds that have launched this year.
Yields explain flight to treasuries
If there is an explanation for why treasuries have become more fashionable for Spanish fund managers, it is that the treasuries are offering significant upside potential through yields. "Our view on Spanish treasuries is optimistic, especially in regard three-year notes. In the event that what is going on in Europe clears up, Spanish debt will provide high rates of return on interest for the funds investing in it," said sources from Invercaixa. The fund is, in fact, that has decided to bet on Spanish debt as a strategy to outfit one of its new funds. Others mirroring this trend are Bankia, Unnim, Ahorro Corporación and, more recently, BBVA.
