The most conservative investors already had a very difficult time achieving a 3% return, that for so many months seemed guaranteed, and now even 2.5% are beginning to resist them. In the last auction of 12-month Treasury Bills, held on October 1, the average interest disbursed by the State was 2.579%, the lowest since December 2022. Now, in the secondary market – where the securities are exchanged after being issued – are trading at that same level (2.579%), flirting with losing 2.5%. It no longer makes sense to dream of achieving 3% in just one year, and the 3.9% that investors pocketed in October 2023 with these debt securities seems very far away (the highest interest seen since the crisis of the peripheral debt in 2012).
But the situation a year ago has nothing to do with the current one. The landscape for fixed income has changed dramatically in a matter of months. The long-awaited rate cuts – which marked a historic moment for having debt in the portfolio – finally started last June. It was then that the ECB carried out its first cut in the price of money in eight years. And then two more have come, the last one last Thursday, October 17. Bond and Treasury yields have moved as monetary policy has moved.
“If I had to bet – something that is very complicated in the financial markets – I would say there is more than a 50% chance that we will see the 12-month Bills below 2.5%“, comments Félix López, managing partner of atl Capital Gestión. “In the end, the setting of the interest rate on the Letters depends on what the market’s expectations are about what interest rates are going to do. In Europe, the expected rate for September next year is around 2%; The market is expecting rates to continue falling in the coming quarters, until June or July 2025; That is where rates are expected to bottom.” Added to this is another series of factors that affect the final setting of the interest rate, such as demand and the perception of country risk. “At this moment, the reality is that Spain’s country risk perception is quite positive, perhaps because, In the kingdom of the blind, the one-eyed man is king. All eyes are now on France’s problems and Germany’s lack of growth, while Spain, Italy, Portugal and Greece are the countries in the euro zone that are growing the most,” adds López. “And, above all, Let’s not forget that what the bondholder wants is to get his money back; That is the number one objective, not so much profitability.” All these factors pull yields downward, as well as the fact that banks “do not aggressively remunerate banking liabilities,” says the managing partner of atl Capital Gestión, which does not expect a tank war between entities. In fact, in recent weeks we have seen a trickle of decreases in the remuneration of these savings vehicles.
Whoever has to renew their 1-year Letters at this time has the option, if they do not want to assume a renewal at lower rates, of slightly change its profile – towards a less conservative one -, moving towards assets and longer terms. David Ardura, Investment Director of Finaccess Value explains it: “Perhaps the time has come for these types of investors to ask themselves Why be in a Letter if I can buy a corporate fixed income investment fund? Funds with a little more duration, a little more volatility, but also more profitability than the Letters are going to give them.” If we talk about retailers, who may not have the assets or the capacity to build a portfolio of bonuses directly, “corporate fixed income funds are a very good option if they have a slightly longer term than the Letters. Because they are going to offer them greater profitability in an environment of growth that, despite being low, is positive. And this, in a scenario of falling rates, “It is a good environment for corporate fixed income, especially those that are investment grade.”. Ardura leaves out high performance for these profiles, “because there you assume many more risks; it is very difficult to go from being an investor in Literature to an investor in high yield“he warns.
The 3-month Treasury Bills are resisting above 3% profitability in secondary school in October. “They are an option, but there are better ones,” explains Félix López, who points to monetary funds “that have credit in their portfolio and that have a very similar risk-return profile, with high-quality credit, and that probably for next three months they can give us between 3.10% and 3.50%; I consider it to be a more attractive alternative. But these terms are bread for today and hunger for tomorrow: “The problem that the investor is going to encounter is that, when it comes to reinvesting, he may have to do it at 2.70%, and three months later, at 2.20 %”. In fact, for several months now – since last June, in the case of 12-month Spanish public debt – investors have been renewing their Letters at lower interest rates than those they had previously enjoyed.
For its part, the yield on the Spanish one-decade bond has been struggling throughout October to hold on to 3%, a level below which it has been located for much of the month. The 10-year reference climbed back to that level this Monday, although well below the 4% it was at a year ago, and very much in line with its French counterpart. The main European sovereign debt references have started the week with sales (which, in this asset, translate into increases in profitability), after the last one, marked by the decision of Christine Lagarde, president of the European Central Bank, to cut rates, purchases would be imposed.
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