Interest rate hikes continue to raise the cost of financing and also the attractiveness of fixed income investments. They do so at different speeds, with Treasury bills being the trendy product for many individuals and bank deposits not yet offering a comparable return.
Yesterday’s auction of 12-month bills closed with interest at 3.46%, already close to 3.5%, after a strong increase of 0.25 points across just a month The yield on this type of public debt is currently the highest since 2012, and many savers are taking advantage.
The profitability marked yesterday also exceeds inflation, which fell by nine tenths in May and stood at 3.2% in year-on-year terms. It is the first time in the current cycle of price increases caused by the end of the pandemic and the invasion of Ukraine that this circumstance has taken place.
According to information from the Treasury, 4,964 million euros were placed in yesterday’s auction in six- and twelve-month bills, after the demand was 1.8 times the offer.
Private investors maintain interest in the bills and yesterday they captured 24% of the demand. It remains a significant figure, although lower than the percentages reached at the beginning of the year, of up to 40%. The six-month bills were awarded at a rate of 3.39%, a slightly lower percentage, but also well above the return on deposits.
According to the data just published by the Bank of Spain, the average remuneration of deposits stood at 1.41% in April, compared to 1.31% a month earlier. It is a lower reference than the euro zone average, which was 2.27% in April, according to ECB calculations.
The other side of interest rate rises has to do with the increasing difficulty for individuals and companies to finance themselves. The Bank of Spain has also just updated the statistics on the cost of loans to companies, in which it can be seen that, in bank credits for an amount greater than a million euros, the interest of the 4%
This cost of debt is the highest in fifteen years and forces companies to change financing strategies. Just a year ago they received money from the banks at just 0.92%, and now they have to adapt to the new scenario. Many companies are holding back on investments and giving up looking for non-bank financing through bond issues, according to the firm IGM.
For loans up to 250,000 euros, the cost of bank debt for companies is already 4.49%, while for those between 250,000 euros and one million euros they amount to 4.2%.
In April, the volume of bank credits granted to companies in operations of more than one million euros stood at 11,957 million euros, a figure slightly higher than in January and February, but below of the average of the last years.
The Bank of Spain estimates that approximately 53% of companies have bank loans and, in addition, predicts that the percentage of those suffering from an excessive financial burden will increase from 11.5% to close to 20%.
Among the financing alternatives used by companies are loans from the EIB and the option of participating in projects endorsed by European funds. Large corporations such as Amadeus, OHLA or Cepsa have repurchased debt.
