When in January dozens of individuals, most of them retired, lined up early in the morning at the door of the Bank of Spain to buy Treasury bills, they had six times more reason to do so than to stay at home. This was at least the multiple by which the return on bills, of 2.8%, exceeded that of bank deposits at the time, of 0.46%. To see on those winter mornings something that yielded close to 3% was quite an event deserving of a good early awakening.
Six months later, bills are still a better investment than deposits, but the gap seems to have started to narrow. At the moment, they no longer yield six times more, but 50% more. They are remunerated at 3.7%, compared to an interest offered by the banks which in June was 2.22% and which is increasing. In percentage terms, in January the difference was more than 2.3 points and now it is less than 1.5 points, until the Bank of Spain updates bank remuneration with the data for July and August.
While banks are beginning to struggle to collect money from customers, the Treasury is managing to reduce the interest on bills for the first time since the beginning of the year. Yesterday it placed nine-month yields at 3.7%, down from 3.81% a month earlier, thanks to stronger demand and that the market is beginning to anticipate that there won’t be many more hikes in interest rate
Auriga Bonos analysts agree on this point. “We believe that the profitability of this asset may be reaching its limit”, they indicate in a report. Last week the Treasury placed one-year bills at 3.68%, also below the previous auction, taking this type of debt away from the 4% it had been approaching .
There is another trend. While the longer-term bills, those of twelve and nine months, lower their profitability, the short-term ones, which are three and six months, maintain or raise it. This approach in the difference between the long and the short term is a new indication that investors are now betting on a stabilization of interest rates.
In yesterday’s auction, the Treasury placed three- and nine-month bills for 2,047 million euros, in the middle range of its target of trading between 1,500 and 2,500 million. It is little more than the 1,980 million issued a month earlier.
The big news was the first decline since July last year in the yield on nine-month bills. The key was demand, which exceeded supply 2.2 times, when a month ago it had exceeded it 1.8 times. This encouraged the Treasury to put on the market bills of this type for 1,524 million.
However, demand from individuals seems to have moderated after the fever at the beginning of the year. Yesterday, non-competitive purchase requests, which are those that arrive via the web and come mainly from small investors, were 373 million, when in the auctions of a few months ago they had reached the equivalent of 40%.
Three-month promissory notes for 523 million euros were also placed yesterday. The profitability of this type of debt, which is the one issued in the shortest term, was 3.53%, the same as a month ago.
While interest rates on bills seem to be approaching their ceiling, the trend among banks is now to start taking an interest in private savings and improving deposits. At the end of June, they were forced to pay back most of the special loans received from the ECB during the pandemic, known as TLTROs, which has reduced liquidity in the system.
Spanish entities returned 38,000 million and are still well oxygenated, but the system is no longer swimming in liquidity. An imminent commercial war for deposits is not expected, but a progressive improvement in their remuneration is.
