Treasury Bills end 2024 well below the level at which they startedin an area of two-year lows, after having lost a good part of its attractiveness dragged by the cycle of rate cuts. The yield on the Kingdom of Spain’s 12-month debt is currently at 2.20%, compared to around 3.20% a year ago. This is 100 basis points less that investors now pocket with these fixed income securities (we are referring to their performance in the secondary market, in which the Letters are bought and sold once issued). This trend of downward yields was also evident in the last auction of one-year Spanish debt, held on December 3, when the Treasury disbursed 2.21% compared to 2.61% the previous month.
The year ends in which, after a time in which they became a star asset – remember the queues in front of the Bank of Spain in 2023 -, Letters have seen their returns deflate. They have done so in line with the cuts in the price of money that the European Central Bank (ECB) has been announcing. The entity has carried out four rate cuts this year: in June, September, October and, the most recent, in December, each of them by 25 basis points. The market still anticipates cuts of more than 100 basis points in Europe a year from now, according to Bloomberg. You can’t scratch it anymore: the Letters are already beginning to be renewed at a lower profitability than a year ago.
The most conservative investors will be forced to take a little more risk if they aspire to achieve 3% profitability, a percentage to which they have become accustomed. It cannot be forgotten that a little over a year ago – in October 2023 – the interest disbursed by the Treasury reached almost 3.9%, the highest yield since the peripheral debt crisis of 2012, but this is now very far away. . It is true that the shorter terms, specifically the 3-month Letters, allow you to achieve a little more profitability: they currently offer 2.57%. But experts agree that they are “bread for today and hunger for tomorrow.” They advise looking towards high-quality corporate bonds (investment grade), preferably European, and lengthening the maturities to the range of 3-5 years.
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