Market performance in 2016 The ECB's monetary policy decisions once again shaped the performance of the markets in 2016, in addition to external factors such as Brexit and the US elections. In March, the ECB cut interest rates from 0.05% to 0%, raising the volume of QE from EUR 60 billion to EUR 80 billion per month. It also increased its purchases of highquality corporate bonds. In December, the ECB agreed to extend its purchase programme until December 2017, although it would taper it off to EUR 60 million per month from April. In order to encourage the banking sector to lend to the real economy, it penalised the deposit facility rate, cutting it from -0.3% to -0.4%, and reducing the margin lending facility rate from 0.30% to 0.25%. Nonetheless, the negative rates did not reduce the excess liquidity held by the ECB, which continued to rise to over EUR 1 billion. Annual Report 2016-2 -
Market performance in 2016 The demand-side pressure prompting the ECB's purchase programme, along with the excess liquidity pushed effective interest rates even further down, and also drove corporate bond risk premiums downwards. The 1Y Euribor dipped into negative territory in February, ending the year at -0.082%. European sovereign debt yields continued to fall for much of the year, with the German 10Y bond yield sliding into negative territory. Exceptionally, 80% of Germany s bond yields were negative in September. These yields were once again positive in the last quarter, although some way off the levels at the beginning of the year. Institutional investors sought higher returns by investing in US public debt and speculative-grade corporate bonds. Companies have exploited the period of low funding costs to reduce their reliance on bank finance and raise funds on the capital markets. Annual Report 2016-3 -
Market performance in 2016 The outcome of the British referendum on leaving the EU was announced in June, which increased the volatility of all market indicators. The following day, the risk premium of Spanish versus German debt reached a yearly high of 179 bp, subsequently recovering rapidly and even exceeding previous levels. The week after, the 3Y Spanish bond yield hit another milestone as it slipped into negative territory for the first time, following the same pattern as debt with a shorter term. The Spanish economy grew 3.2% in 2016, as in the previous year, building on 13 quarters of consecutive growth. The provisional public deficit stood at 4.7% of GDP, while the debt of all public entities reached EUR 1.105 trillion, up 3% year on year, and equivalent to 98.98% of GDP. Inflation ended the year at 1.6%. Annual Report 2016-4 -
Market performance in 2016 The Treasury had net issuances during the year of EUR 35.043 billion, 27% below the 2015 figure and almost EUR 10 billion lower than expected, after covering maturities of EUR 186.321 billion. The average funding cost stood at 0.61% at the end of December compared to 0.84% a year earlier. Savings on interest payments totalled EUR 2 billion. The average life of borrowings increased to 6.81 years (+5.6%). Aside from its auctions, the Treasury drew down on syndicated bank loans to bring in EUR 22.879 billion, including one notable loan at 50 years. The volume of inflation-linked European government bonds and debentures totalled EUR 7.785 billion, with 6.5% of the total expiring in the medium to long term with a new benchmark at five years. Annual Report 2016-5 -
Market performance in 2016 During the latter half of the year, lending to companies slowed. Various analysts attributed this to the injection of liquidity deriving from eliminating part payments of corporation tax on the one hand, and the largest corporations turning to alternative funding sources on the other. Uncertainty in the domestic and international political arenas was also cited as a possible cause. New lending to companies fell to October by around a third in the segment of over EUR 1 million. In contrast, the volume of loans of less than EUR 250,000 increased by 4.2%, exceeding the former in absolute terms. Mortgages rose by approximately 15%, while loan defaults were up 17%. The mortgage loan balance continued to decrease, as in previous years, as repayments and cancellations outstripped new loans. Annual Report 2016-6 -
Market performance in 2016 The outstanding balance of public and corporate bonds listed on the AIAF rose by 1.2% to EUR 1.38 billion off the back of an increase in state debt, since private sector debt continued to fall (-4.4%). The treasury positions of entities made up the highest share of this balance at year end of 44.4%. The volume of government debt held by non-resident investors remained practically unchanged at around EUR 415 billion which, due to net growth thereof, resulted in a 1.6 point fall as a percentage of the total. The share of investment in private debt also fell (1.4 points). Institutional investors were more active in the primary market, while the share of retail investors dropped to just 1% of the total. Annual Report 2016-7 -
Market performance in 2016 Private fixed income issuances admitted to trading on the AIAF market in 2016 stood at EUR 130 billion (-10.8%) similar to the figure in 2013. Of this amount, 17.5% consisted of promissory note issuances. Short-term issuances dropped by 17.1% year on year, while medium- and long-term issuances fell by 9.3%. Medium- and long-term issuances of financial institutions, including the SAREB, totalled EUR 68.855 billion. Bonds and debentures not secured by additional collateral decreased by 33.4%, while covered bonds declined by 3.9%. The volume of securitised bonds issued grew by 22.2%. Annual Report 2016-8 -
Market performance in 2016 BME's Fixed Income unit handled trades totalling EUR 347.780 billion, down 44.2% versus the previous year. Of this volume, 57.3% involved trading of government debt, and the remainder, private debt. By type of transaction, 87.3% were held to maturity, while repos and reverse repos declined by 12.3%. Negative interest rates and the lack of new issuances targeting retail investors affected the SEND platform for another year, which saw its trading volume drop by 19% compared to 2015. Trading volume on the SENAF wholesale public debt platform, where the Treasury's market makers are active, rose by 60.6%, with 29.2% more trades being handled. Annual Report 2016-9 -
Market performance in 2016 The Mercado Alternativo de Renta Fija (MARF) continued to grow, providing access to new companies seeking to diversify their funding sources. New issuances listed on this market during 2016 multiplied by 2.7 in volume terms year on year, to EUR 2.280 billion. At the end of its third year since it was established, the MARF has handled over EUR 3.650 billion of funding through new issuances, and has an outstanding balance of EUR 1.608 billion. A total of 29 medium-sized enterprises have issued securities individually, with over 126 smaller enterprises obtaining finance by grouping notes through securitised bonds. A total of EUR 399 million of bonds expiring in the medium to long term, with maturities of three to 21 years were issued. Companies used 3M to 2Y promissory notes to raise a total of EUR 1.858 billion, through fifteen issuance programmes with a maximum aggregated outstanding balance of EUR 1.650 billion. Annual Report 2016-10 -
Indicators Annual Report 2016-11 -
Oil The slump in prices in the previous quarter continued in January, reaching a low of USD 26.39 a barrel, subsequently rebounding before the summer. A high was reached in December after months of uncertainty. Annual Report 2016-12 -
Gold Gold prices rose by 20% during the first six months from a low at the beginning of the year. They hit a high on 8 July of USD 1,366.38 an ounce after Brexit. The increase for the year fell to 8.05% during the latter six months. Annual Report 2016-13 -
Euro The euro reached an annual high against the US dollar the beginning of May of 1,153 (+6.2%). The strengthening of the dollar due to US economic growth forecasts saw the exchange rate dropping to 1,052 (-3.13%). Annual Report 2016-14 -
10Y sovereign debt The Spanish 10Y bond improved its position among European bonds, with the yield hitting 1.384% by year-end, having dropped to a low of 0.88% in September. Germany's bond yield dipped into negative territory in June as the British referendum played out. Annual Report 2016-15 -
Risk premium The spread between Spanish and German 10Y bonds hit an annual high when the result of the Brexit referendum was announced, subsequently decreasing to a low of 97 bp in October. The year-end result was flat at 116 bp. Annual Report 2016-16 -
Government bond yields 3Y government bond yields continued to be negative during most of the second half of 2016. The yield on 5Y bonds dropped by more than 400 basis points. Annual Report 2016-17 -
Market statistics Annual Report 2016-18 -
Private fixed income: Primary market Private fixed income issuances admitted to trading on the AIAF market in 2016 stood at EUR 130.138 billion (-10.8%). Annual Report 2016-19 -
Primary market Bonds and debentures fell by more than 8 percentage points as a percentage of the total admitted to trading, as securitised bonds and covered bonds gained ground. Annual Report 2016-20 -
Promissory note listings Volumes of promissory notes admitted to trading continued to fall due to the low yields on this type of paper, making them unattractive for investors. Annual Report 2016-21 -
Promissory note issues The monthly average of note issues was only EUR 1.898 billion/month, compared to EUR 2.288 billion a year earlier. A monthly high of EUR 3.632 billion was posted in June. Annual Report 2016-22 -
Leading issuers of promissory notes Sabadell was the bank that made the most use of its issuance programmes, with a share of over 39%. The five leading banks issued upwards of 88% of the total volume. Annual Report 2016-23 -
Private fixed income: Medium- and long-term asset listings Medium- and long-term asset listings dropped by 9.3%. The greatest fall was of bonds and debentures not secured by additional collateral (-33.4%). Annual Report 2016-24 -
Bonds, covered bonds and debentures Issuer Volume SAREB 23,466 Santander 11,738 BBVA 7,640 Sabadell 6,417 CaixaBank 5,762 Popular 3,250 Bankia 2,286 Deutsche 2,000 Abertis 1,650 Cajas Rurales Unidas 1,500 Others 6,154 Total 71,863 Source: BME Millions Spain's bad bank Sociedad de Gestión de Activos Inmobiliarios Procedentes de la Reestructuración Bancaria (SAREB) arranged four issues accounting for around a third of the total assets listed through medium- and long-term plain vanilla issues. Annual Report 2016-25 -
Securitisation Securitised bond issues were up 22.2% year on year to EUR 35.505 billion. Most noteworthy given its size (EUR 14.2 billion) was CaixaBank's issue in February, secured by home loans. Annual Report 2016-26 -
Maturities The volume of medium- and long-term asset redemptions fell for the fourth year running. Twenty percent of maturities were concentrated in December. Annual Report 2016-27 -
Securitised bond maturities The average redemption rate for securitised bond maturities fell by 50% in two years to levels of 1.50%. Annual Report 2016-28 -
Outstanding balance The outstanding balance of the AIAF Market at year-end was EUR 1.38 billion (+1.2%). Treasury debt securities rose by over two points in relative terms. Annual Report 2016-29 -
Outstanding balance Fixed income outstanding balance Short term Medium and long term Number of issues (ISIN) outstanding Short term Medium and long term Private fixed income 16,150 494,342 Public fixed income 82,435 744,999 Private fixed income 333 2,098 Public fixed income 12 46 Total 98,585 1,239,341 Total 345 2,144 Source: BME EUR million Source: BME The outstanding balance of short-term assets (government bonds and promissory notes) accounted for 7.2% of the total. There were 2,489 issues (ISINs) outstanding at that date. Annual Report 2016-30 -
Outstanding balance The volume of private debt securities in circulation at year-end 2016 on the AIAF Market totalled EUR 510.492 billion, having fallen by 4.4% from the prior year. Annual Report 2016-31 -
Outstanding balance Covered bonds accounted for over half the balance, although their share fell by 1.5 points. In contrast, the balance of securitised bonds grew in relative terms (3.4 points). Annual Report 2016-32 -
Promissory notes outstanding balance The outstanding balance of promissory notes increased by 6.2% year on year. Nonetheless, the net monthly balance (issues - redemptions) was negative for much of the year. Annual Report 2016-33 -
Leading promissory note issuers by outstanding balance The five leading promissory note issuers had a combined outstanding balance of EUR 13.732 billion 85% of the total outstanding balance. Annual Report 2016-34 -
Type of investor in treasury assets The share of the outstanding balance of treasury debt securities held by non-resident investors rose by almost 6 points. Oppositely, the relative position held by retail investors decreased by 2.3 percentage points. Annual Report 2016-35 -
Type of private fixed income investor by asset class The main changes in investor preferences affect promissory notes, where collective investment institutions and pension funds held greater relative shares, with entities' treasury portfolios accounting for a smaller share. Annual Report 2016-36 -
Outstanding balance of non-resident investors Non-resident investors held a position of EUR 563.865 billion at the close of the year, with Spanish government bonds and debentures accounting for EUR 328.089 billion of this amount. Annual Report 2016-37 -
Outstanding balance of CIIs and pension funds The positions of CIIs and pension funds remained stable year on year, with the reduction in investments in private debt being offset by the increase in the position held in public debt. Annual Report 2016-38 -
Secondary market: AIAF private debt The volume traded in 2016 was EUR 172.962 billion, a third of the volume contracted in the previous year. Annual Report 2016-39 -
Secondary market: AIAF private debt Reverse repurchases of AIAF assets dropped by 84.2%, because the excess liquidity in the system due to the ECB's purchases make this type of funding source redundant. Annual Report 2016-40 -
Secondary market: AIAF private debt EUR 97.314 billion of covered bonds were traded. The implementation of the ECB's Covered Bonds 3 purchase programme involved a volume of EUR 9.221 billion. Annual Report 2016-41 -
AIAF private debt transactions Transactions fell because issues are only being placed among a reduced group of institutional investors who intend to hold their portfolios to maturity. Another reasons mentioned beforehand, is the disappearance of the retail investor market. Annual Report 2016-42 -
AIAF private debt transactions Approximately 44% of transactions were for a unit face amount of over EUR 60,000 euros, up 8 points year on year, which is an indication of the presence of institutional investors. Annual Report 2016-43 -
SEND: Retail investor platform Trading activity via the SEND electronic platform totalled EUR 781 million, down 19% from a year earlier. Annual Report 2016-44 -
SENAF Trading activity via the multilateral SENAF public debt electronic platform totalled EUR 174.816 billion, up 60.6% year on year. Annual Report 2016-45 -
SENAF A total of 15,808 trades were made, representing an increase of 29%. The average volume was EUR 11 million per trade, compared to EUR 8.8 million in 2015. Annual Report 2016-46 -
MARF New issues totalling EUR 2.280 billion were listed on the Mercado Alternativo de Renta Fija in 2016. The outstanding balance grew 56.6% year on year, to EUR 1.612 billion. Annual Report 2016-47 -
AIAF 2000 Indexes Performance of AIAF 2000 Indices Duration Contents High Low Last Moderate High Low Last IG General 5,886.67 5,490.88 5,759.92 5.39 5.58 4.85 5.24 IC Short 4,566.91 4,447.63 4,565.43 1.88 2.03 1.63 1.84 IM Average 5,701.48 5,455.99 5,640.30 3.93 4.07 3.77 3.82 IL Long 7,141.98 6,510.08 6,927.85 6.82 6.92 6.58 6.58 IX Very long 9,255.79 7,914.64 8,637.73 11.72 11.92 11.12 11.29 Annual Report 2016-48 -
AIAF 2000 Indexes The AIAF 2000 Index climbed 57% over the last five years. Annual Report 2016-49 -
Market outlook International: Overall bright outlook, although there are some doubts about the repercussions of the measures taken by Trump's administration. Growth in the US fuelled by more public spending. China will post similar growth to in 2016 (+6%), despite a slowdown in investment. Emerging economies will enjoy growth off the back of a rebound in commodity prices. European Union: Growth for the area is expected to hit around 1.5%, although the outcome of Brexit could slash several tenths of a percent off this figure. Inflation has spiked in February to 2% because of higher the oil price. It is expected to end the year at 1.1%. Spain: Spanish economic growth will continue to exceed the European average, standing at around 2.4-2.8%. The CPI rose sharply in early 2017 as a result of higher energy prices, although it is expected to fall throughout the year to approximately 1.8% by year-end. Annual Report 2016-50 -
Market outlook Risk premium: At the beginning of 2017, the risk premium rose from 116 to 140 basis points in early March, driven by the safehaven effect of German bonds. In any event, it is expected that the spread versus other European Union countries will continue to narrow. It will also be affected by contagion from Italy's risk premium, although it will remain lower than this. Interest rates: It is expected that the Federal Reserve will raise its official rate at least twice to 1.75%. Low interest rates will persist in Europe, where the current official interest rate of 0.0% is expected to remain flat. European bond yields may recover if the ECB tapers off its asset purchase programme. Fixed income: Yields on Spanish debt appear to have bottomed out. That said, major changes are not expected during the year until possible withdrawals of European stimulus measures occur. Annual Report 2016-51 -
Market outlook Government debt: The Treasury expects to issue a further EUR 35 billion of public debt, net, during 2017 in line with the prior year having covered maturities of around EUR 185 billion. Private debt: Maturities on the AIAF market are expected to total EUR 93 billion, EUR 40 billion of which will concern covered bonds. The nominal balance of securitised bonds will drop by EUR 20 billion. SEND: Major changes are not expected, due to the limited returns on offer. Retail investors will continue to hold limited positions in both the public and private fixed income market. MARF: During the first two months of 2017, this market handled placements equivalent to 23% of the total of the previous year. Major increases in issues and the outstanding balance are expected, as well as of new issuers. Annual Report 2016-52 -