LONDON Oct 25 The ECB's bond-buying plan,
Madrid's reforms and global monetary easing are luring foreign
investors back to Spanish sovereign debt, particularly for
It is a case of searching for yield while knowing that the
European Central Bank has your back.
"Spain is my favourite (among non-core euro zone bonds)
because we've got all sorts of hedges," said Elke Speidel-Walz,
chief investment strategist for Germany at Deutsche Bank Private
"This means the risk return is best in Spain."
Spain's head of Treasury, Inigo Fernandez de Mesa, says the
percentage of non-Spanish investors snapping up his country's
debt recently could be as high as 80.
"In almost all the auctions more than 50 percent comes from
international primary dealers. Sometimes it's 80 percent,
sometimes 70 percent, sometimes 50 percent, sometimes 60
percent.... There is a strong interest," he told Reuters in an
interview on Wednesday..
Not everyone is on board, of course, and Spain still needs
to press ahead with structural reforms to create a long-term
climate that normalises bond yields across the curve.
It is also a long way back from the bottom.
Foreign investors' holdings of 5 and 10 year Spanish debt
fell to 33.86 percent in the first eight months of the year as
fears grew it was heading for bankruptcy like Greece. This
compares with 51.5 percent last year and a record 54.7 percent
in 2010, Spanish Treasury data shows.
But some big funds have been moving back in, particularly
since ECB President Mario Draghi announced his potentially
unlimited bond-buying programme in early September.
In a strong sign of a shift of investors' view towards
Spain, in the three months to end-September, several funds at
BlackRock, the world's largest asset manager, made notable
increases in allocations to Spanish government debt, Thomson
Reuters Lipper data shows.
"We have been buyers of Spanish government bonds over the
last quarter," said Scott Thiel, head of European and global
bonds a t BlackRock, whose team manages $100 billion in fixed
income assets. Short-term debt was a particular focus.
Thiel said his positive assessment of Spain was based on the
government's commitment to reforms, EU rescue plans and low
interest rates across the world. But he also stressed that this
only applied to a 3-6 month view.
"It will be a multi-year process, it's not going to be
fixed next year or the year after," he said.
The BlackRock World Income Fund has increased its portfolio
weighting to Spain to 7.1 percent from 3 percent, Lipper data
shows, and the BlackRock International Bond Portfolio went to
6.8 percent from 4.5 percent.
The world's biggest bond fund PIMCO also bought Spanish
bonds recently, its manager Bill Gross told the Wall Street
Journal earlier this month.
For M&G fund manager Jim Leaviss, the improvement in
creditworthiness of peripheral euro zone countries, including
Spain, is also due to the EU's Nov 1 ban on "naked" positions in
credit default swaps -- essentially insurance policies against
The ban stops investors from holding CDS without actually
needing them for hedging.
"As November approaches, the market is one-way," Leaviss
wrote in a note. "There is no longer any willing counterpart to
take the short risk positions off the euro zone bears' books."
Not all are convinced by the attractiveness of Spanish debt,
UniCredit's asset management arm Pioneer Investments has
taken profits recently on its holdings in Spain in most
actively-managed fixed-income portfolios, Cosimo Marasciulo,
Head of Government Bond and FX said in a note earlier this week.
He pointed at probable delays in bailout talks and other
risks including a potentially worsening scenario outside the
Others noted that Spain still has work to do to convince
investors to buy its bonds across the curve.
The yield spread between 2 and 10-year Spanish bonds
has narrowed by 100 basis points since the ECB
announced its bond-buying (OMT) programme, but at 250 bps the
spread still looks wide compared with others, investors say.
"The problem for Spain is the extent to which they will be
able to issue longer-dated paper," said P h ilip Poole, head of
global investment strategy at HSBC Asset Management.
"It's about structural reform to increase competitiveness,
it's about restoring confidence in the economic model and the
drivers of growth. We are still a long way from that."