SPAIN: Spain fail to launch low inflation bonds … – EntornoInteligente

SPAIN <- - AUGURE_NOTICIA_INICIO!>: Spain fail to launch low inflation linked to the CPI / bonds The World / After more than two years evaluating the possibility of issuing linked to price developments, Treasury bonds has finally announced that this week will hold its first bond issue 10-year inflation-linked European. The move comes at a time marked by the debate over whether there is a risk of deflation in the euro zone and if the European Central Bank (ECB) will do something about it.

What are inflation linked bonds? They are a type of debt whose final return depends on inflation developments throughout his life. These bonds are different from those usually issue the Treasury that the coupon paid to the investor which must add up the Harmonized Index of Consumer Prices (HICP), excluding snuff or subtract what lower. In the case of Spain to be issued this week, over the next 10 years.

Does it make sense issue them at risk of deflation? “Now that inflation is low, the cost of issuing them is small for the Treasury,” says the deputy head of the table debt Ahorro Corporación, Javier Casal. But as it is a bet on the future, if prices in the next 10 years the cost to the state will increase. And if instead fall, the issue will be lowered further. In any case, remember that the official forecasts of the eurozone rule deflation and the ECB has promised to act if inflation does not stabilize.

Are attractive for investors? If you bet on an economic normalization in which the ECB would meet the objective of its mandate to keep prices in the euro zone at around 2%, the bet is interesting. According to the latest Eurostat data, the variation so far this year the HICP leading indicator in April stood at 0.3% (five tenths above the previous month).

In addition, Inflation-linked bonds are attractive because they allow investors to hedge against the loss of purchasing power that occurs in many long-term investments by the impact of rising prices (implying a loss in value of the principal amount invested).

Why are issued by the Treasury? Spain has long been working to attract new investors. Within this strategy, the Treasury wants to attract, among others, pension funds and insurance companies, which often require such bonds and debt issued in the very long term.

Is Spain a pioneer in this type of emissions? No. The largest economies in the Eurozone France, Italy or Germany and UK already have long issuing this type of product. Outside Europe, the US, Australia, Argentina and South Africa are also issuers of inflation-linked bonds.

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