The yield on 12-month Treasury bills fell below 3% at Tuesday’s auction for the first time since February 2023, a year and a half ago. Specifically, a marginal interest rate of 2.975% was paid for the 3.93 billion euros awarded. Demand was higher, at around 5.901 billion euros, according to the Ministry of Economy. Logically, it was four-tenths below the rate paid at the previous auction (3.392%).
Twelve-month bonds have been one of the refuges for Spanish savers to try to weather inflation. Now, the forecast that the European Central Bank will lower interest rates at its next meeting in September and that the market may discount further reductions after that means that the yield paid is dwindling. Since March, all twelve-month bond auctions have been reducing marginal yield.
ECB rate strategy sets the pace
You have to go back to February 2023 to find a payment below 3%. At that time, the bills were placed with a marginal rate of 2.839%, according to data from the Public Treasury. From that moment on, the payment gradually increased, reaching a peak of 3.876% in October 2023, following the rate hikes by the European Central Bank. The entity chaired by Christine Lagarde stopped the rate hike cycle in September of last year, at which time the profitability began its downward path.
Throughout 2024, yields had moved in a range of 3.3%-3.5%, with uncertainty about the ECB’s steps marking the course. The Frankfurt-based bank’s first rate cut came in June, confirming the drop in payments. In fact, the reduction recorded today compared to the previous auction, of four-tenths, is the largest since it was placed above 3%. In its report on the financial situation of households in the first half of the year, the Bank of Spain detected a transfer of savings from Treasury bills to deposits, something it attributed to the “loss of certain attractiveness” due to the reduction in yield.
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Six-month debt securities were also auctioned on Tuesday. In this case, the yield remained above 3%, with a marginal rate of 3.267%. This is about two-tenths less than in the auction of the previous month. In this tranche, 1.256 billion euros were awarded for a demand that more than doubled the placement, with 2.77 billion euros.
The next auctions for 12-month bills will be on September 3 and October 1. The calendar is the same for six-month bills. This month, there are still three-month and nine-month auctions pending on August 13.
