This Tuesday is celebrated the last 12-month Letters auction in 2024. The year that is about to end is not just any year: it has marked the beginning of the long-awaited rate cuts. And, in line with the cuts that the European Central Bank has been implementing, the yields of the Letters have fallen abruptly. If in the December 2023 auction the Treasury disbursed 3.30% for the 12-month Bills, in the November 2024 auction the interest remained at 2.61%, and this interest is expected to decrease in today’s auction, adapting to his secondary school contribution.
The secondary market – in which securities are exchanged after being issued – reflects this clear trend of downward returns: Letters are trading slightly below 2.20%, at 25-month lows. At this level, Compared to December 2023, there are 111 basic remuneration points that no longer go to savers’ pockets. The 3.9% that investors obtained in October 2023 with these debt securities now seems very distant, a maximum that has not been seen since the 2012 debt crisis (see graph below).
Bill holders are mainly small savers. In August, according to the latest Treasury data, most of the balance in these debt securities – approximately 38% – was in the hands of retailers. Families accumulate more than 27,400 million euros in this asset, surpassing foreign savers (with 17,000 million).
If we look towards shorter terms, 3-month bills still offer 2.76% on the secondary market, but experts agree that buying them is “bread for today, and hunger for tomorrow.” And if we look at longer maturities, the 10-year bond has seen its profitability fall to 2.77%, the lowest level since August 2022. The year 2024 started it above 3.2%, but it has moved in line with the ECB’s monetary policy decisions. The US debt offers 135 basis points more profitability than the Spanish bond after the arrival of Trump.
The Central Bank has made three interest rate cuts so far this year, in June, September and, the most recent, in October, each by 25 basis points. The market still discounts six more drops, also of 25 points each, between now and October 2025, according to Bloomberg.
Time to look at other assets
We come from a time when Letters became authentic objects of desire. Guaranteed returns close to 3% without assuming risk thanks to these Treasury securities generated very long lines at the doors of the Bank of Spain. But now, with falling returns (and with savers accustomed to those returns), so that inflation does not coma returns it is necessary to look towards other assets. This need to convince the conservative investor to take on greater risk was discussed just a few days ago in the III Forum of the Active Management League of elEconomista.es. “Last year, people wanted Letters and more Letters; we suggested that they look towards monetary funds, which include credit; but people are always a little late, and it is now when they want to enter more flexible funds so as not to be left behind” commented Carmen García, Fixed Income Fund Manager at Renta 4 Gestora.
“It is our duty to explain to clients that zero real rates are close and The money will not be in the Letters but in other assetsmore linked to companies, which have better balance sheets than government debt, and which offer coupons of 3 or 4% with controlled risk; We are going towards an environment of great volatility and this component is crucial,” said Gonzalo Rengifo, head of Iberia and Latin America at Pictet Asset Management, who stressed that “the risk-free coupon for the conservative is no longer going to be there, so “it is necessary to look for alternatives.”
Along the same lines, Javier García, head of Sales for Iberia at BlackRock, recalled that the period of risk-free returns “has come to an end” and we are entering a “more volatile” territory, which should lead investors to “allocate your capital in a different way, regardless of profile.”
“There is too much deposit in family savings and in this environment of disinflation and relaxation of monetary policies, we must begin to look for other alternatives as maturities arrive,” said Iván Díez, country head for Spain, Portugal and Latin America from La Financière de l’Échiquier.
In general, the fixed income experts who participated in the III Forum of the Active Management League They find the best opportunities in European debt compared to US debt, and choose to extend durations to the range of 3 to 5 years.
But it cannot be forgotten that The Spanish investor is mostly conservative. According to data from the Inverco Observatory (the management association), half of Spanish fund savers have a moderate profile (they want good returns, with controlled risks of loss), while 37% describe themselves as conservative, four points more than in 2022.
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