Confidence into Spanish government bond collateral has risen

International banks have used a record amount of Spanish government bonds as collateral to borrow money in the markets this week, sparking hopes that credit problems in the troubled eurozone are easing.

The use of Spanish government bonds shows that confidence in Madrid has risen in recent weeks as fears recede that the country’s sluggish economy will trigger defaults on bonds and loans. Short-term loans, backed by Spanish bonds in repurchase agreements – the key area for bank funding in Europe – had hit €160bn by Wednesday this week, according to Icap’s BrokerTec, a key platform for raising money in Europe.

Many banks using Spanish bonds as collateral are domestic institutions, which had been struggling to access finance.

The Spanish banks have been heavily reliant on loans from the European Central Bank because of fears about the stability of the finance sector.

It is also a boost for the eurozone, as worries that defaults in a big economy such as Spain, the fourth largest in the 16-bloc single currency, could undermine the euro. Don Smith, economist at Icap, said: “This is a very positive sign for Spain as it lessens their reliance on the European Central Bank for loans

http://www.ft.com/cms/s/0/342dfe14-b144-11df-b899-00144feabdc0.html

 

http://fistfulofeuros.net/afoe/econ...wheel-and-live/

Spain Using its Social Security Funds to Buy Up Its Own Bonds!

Edward Hugh:

Watching the TV news here is Spain at the moment is often a rather discomforting and sad affair. The normal menu seems to consist of a constant stream of ministers who have to appear before the cameras and the public to explain something that they, in all fairness, don’t really understand themselves. And so it was on Saturday, as I tucked into my early morning breakast of sausage and beans (Catalan style) in the village near my mountain retreat, there in the background I could see the face of Spain’s Labour Minister Celestino Corbacho (photo above), giving details to the assembled press corps of the latest government decision to make another six month extension for the 426 euro monthly “exceptional” payment for those whose unemployment benefits have run out. Why there are so many unemployed in Spain, and why renewing this subsidy is now an almost permanent necessity (this is now the third time that this “temporary” means of support has been extended), or what the real prospects of creating enough jobs to start reducing the unemployment mountain any time in the foreseeable future, was not explained. Well, the future is not ours to see, so “que sera, sera”.


So to come back to the original issue, Spain’s debt to GDP is obviously, in reality, rather higher than is being admitted publicly (or measured by Eurostat)....


...A request for clarification from the Bank of Spain as to the methodology involved in the Financial Accounts they published, both clarified and didn’t clarify the key topics. The Bank say that there is no available document which briefly explains the differences between the concept of debt according to the Excess Deficit Procedure (EDP) and total liabilities shown in the financial accounts. However,they do say the major differences are due to fact the EDP debt that does not include accounts payable, that liabilities are deducted for debt movements between public authorities (the social security fund issue)and liabilities are valued using their nominal values rather than their market values.
...On the other hand, they make plain that the debt of public corporations is not included in the EDP calculations (nor it seems in the Financial Accounts). So there is something like 50 billion euros in debt (or 5% of Spanish GDP) lingering around on the public corporation balance sheets.

Of course, although no debt is formally incurred, the “virtual” debt still has to be serviced, which means there is a constant drain on revenue, and since the securitisation normally implies some sort of “super senior” status for loan, then what happens is that paying these become a priority, while obligations to real current suppliers, where there is no such securitisation, go to the back of the queue, with the obvious consequence that arrears in the normal accounts payable simply pile up.According to Spain’s Financial Accounts, there were some 73 billion euros (7% of GDP) of these in the entire government system at the end of Q1...

http://israelfinancialexpert.blogsp...funds.html#more

 

is it a good news?

 

"International banks have used a record amount of Spanish government bonds as collateral to borrow money in the markets this week, sparking hopes that credit problems in the troubled eurozone are easing.

The use of Spanish government bonds shows that confidence in Madrid has risen in recent weeks as fears recede that the country’s sluggish economy will trigger defaults on bonds and loans"