The global debt market is going through a new wave of sales that is driving bond yields to levels not seen in years. The yield on the U.S. ten-year bond is approaching 5%, the Japanese has surpassed 3% for the first time since 1996, and the references from the United Kingdom, Germany, and France are also under pressure. The movement reflects investors' fears that inflation will remain high for longer and that central banks will have to maintain or even raise interest rates.
The immediate origin of the tension lies in the rising cost of energy. The resumption of attacks between the United States and Iran has raised the risk of disruptions in the Strait of Hormuz and has driven Brent to 95 dollars per barrel. More expensive oil threatens to prolong inflationary pressures and makes it difficult for monetary authorities to relax financial conditions.
The Euribor makes mortgages more expensive again
The deterioration of financial conditions already has a concrete reference for Spanish households. The Euribor closed August at 2.95%, compared to 2.855% in July and 2.114% recorded a year earlier. It is its highest level in almost two years and particularly affects those who have contracted a variable rate mortgage with semi-annual or annual review.
The evolution of this index determines the update of the installments in loans linked to the Euribor. The specific impact depends on the outstanding capital, the remaining amortization period, the differential agreed with the bank, and the moment when the review is due.
The difference compared to the previous year also changes the scenario for those who contracted financing when rates were declining. A new sustained rise in the index can delay the relief that households with variable loans were expecting and increase the financial cost of their installments.
The IBEX loses 20,000 points
The tension in fixed income also transferred to the Spanish Stock Exchange in the first session of September. The IBEX 35 fell by 0.75%, to 19,824 points, after losing the reference of 20,000 during the day.
The movement affected companies unevenly. Amadeus, Cellnex, and Acciona were among the most punished stocks, while Repsol, Unicaja, Grifols, and Naturgy ended the session with gains.
In the Spanish debt market, the ten-year bond ended at 3.501%, while the risk premium stood at 44.13 basis points. The combination of both indicators provides a reference on the cost at which Spain finances itself and on the difference in returns that investors demand compared to German debt.
Why a bond sale affects the entire economy
The relationship between the price and yield of bonds explains the movement that debt is experiencing. When investors sell already issued securities, their price falls and the yield obtained by the buyer increases. This rise modifies the financing conditions for new issuers.
The market is also facing an increase in the financing needs of numerous governments. This is compounded by the issuance of debt by large technology companies to finance their investments, especially those related to artificial intelligence. The increase in supply forces issuers to compete for available capital.
Investors are also demanding greater compensation for holding debt over long periods. Inflation reduces the real value of future payments and increases uncertainty about the returns these assets will offer during their useful life.
The Treasury faces new issuances in September
The pressure on the debt markets comes when the Spanish Treasury plans to return to the market. The September calendar includes issuances of bonds and obligations with different maturities, including an auction scheduled for September 3.
This operation includes three and five-year bonds and longer-term obligations, with nominal coupons of 2.35%, 2.60%, and 3.30%, in addition to an inflation-indexed obligation for 15 years.
The latest auctions had already reflected the change in scenario. The Treasury placed on September 1 six and twelve-month bills with yields of 2.641% and 2.846%, respectively, in both cases at maximum levels in almost two years.
The evolution of the upcoming issuances will allow us to see to what extent the increase in international yields is being transferred to the effective financing cost of the Spanish State.