The Iberian connection(s) | FT Alphaville

The Iberian connection(s)

Notes from the search for exposure to Spanish bonds, this.

Timely, as 10-year issues are trading at a record spread (233bps at pixel time) to bunds, according to Bloomberg data.

Here’s an interesting chart from an investor presentation found while we were rooting around on the Spanish Treasury’s website:

At first sight, it appears as if French investors could be quite on the hook, doesn’t it? We jest — but this is what happened the last time France was entangled in Spain:

However the Tesoro presentation also carries more detail on a specific recent Spanish bond issue. This is the latest 10-year benchmark bond, auctioned in a €6bn sale during the previous heights of the sovereign crisis in July, for a yield of 4.85 per cent.

Flash forward to November, and it’s this 10-year bond — the October 31, 2020 issue — which is yielding at a record spread to bunds. Ahem.

It’s one bond, but it’s intriguing to note how different the exposure is here compared to the overall debt position of Spain (click charts to enlarge):

Spanish banks’ exposure is well-known, but the size of UK involvement looks particularly significant in this issue. What’s even more striking is that this is the very same Spanish auction that was famously (if you prefer, notoriously) supported by China’s State Administration of Foreign Exchange. We’re not sure how SAFE would be classified (Official Institution? Fund Manager?) but they must be represented.

One half-wonders if the Chinese kept the receipt.


Meanwhile, in Portugal…

As far as the periphery’s various banking system are concerned, it definitely appeared as if Ireland’s was lurching back to the brink on Tuesday, with more worry over potential losses and deposit flights.

We’d note that banks’ use of ECB overnight liquidity has just bulged to €3.64bn, up from previous amounts of over €2bn. Ireland’s banks no doubt availed of a good chunk of that, but it’s worth noting Portugual’s banks are also fragile here.

Portuguese borrowing from the ECB sat at around €40bn last month, which is far below Irish banks’ €130bn. Some Portuguese banks, namely Millennium BCP and Banco Espirito Santo (BES), need liquidity more than others, though. As this chart from Deutsche Bank shows:

And for the record on Iberian exposure, Deutsche Bank also point out sovereign exposure for these two banks:

It’s all looking scarily interconnected, and not just within Iberia.

Related links:
Spain shakes, rattles and rolls – FT Alphaville
Coming clean about the European bailouts – FT Alphaville
European banking binary bet – FT Alphaville