Spanish Bad Loans Soar By Most In 3 Years As Bond Issuance Set To Surge

Tyler Durden's picture


The absence of any ket EMU events combined with a relatively muted news flow on the debt crisis amid the summer vacations/doldrums and a major lack of bond supply from the periphery until the end of August has created a favorable environment for peripheral debt. Draghi's August 2nd comments drove risk-on and as UBS notes, this amplified the usual thin liquidity and light volumes. However, all these fun and games are about to stop as September has myriad events slated that are likely to have significant impacts on investors' demand for peripheral paper. Spain, in particular, after seeing its stock and bond markets surging euphorically, is about to suffer a double-whammy. Gross issuance for the rest of the year is estimated at EUR8bn per month (and could rise to EUR13bn per month) implying EUR4-6bn per auction twice a month - keeping bonds back under pressure as supply approaches. As if that was not enough, Delinquencies on Spanish bank loans just soared to new all-time highs, rising by the most in over three years and accelerating. So, after a calm summer vacation, Spain (optics aside) is bad and about to get much worse.


Spanish loan delinquencies bad and getting worse in a hurry...

and supply is set to rise significantly in September and October for Spain...


UBS: Spain’s funding outlook through year-end looks challenging

Even assuming that the Spanish Treasury sticks to its original funding plan of EUR 86bn, the Tesoro will need to continue to sell around EUR 6bn of bonds per month. Monthly net issuance should average nearly EUR 3bn. Moreover, gross issuance could potentially rise to around EUR 8bn per month and total net issuance could reach EUR 13bn if Spain adjusts for the increased net-borrowing requirement.


Considering that Spain usually carries out two auctions per month, this would imply an average issuance of around EUR 4bn per auction. The last time Spain was able to sell such an amount at a single auction session was in early March. Monthly supply has ranged between EUR 5-6bn since April (we exclude the first three months of 2012 when Spanish supply was largely supported by the two 3Y LTROs). Since that time, Spanish banks’ capacity to absorb new government paper has deteriorated.


In our view this should continue to keep Spanish bonds under pressure each time supply approaches, making Spain very vulnerable to a possible loss of market access should other adverse domestic economic factors or events cause demand to fall even further.


Spain’s situation is even more worrisome when looking at next year’s funding requirements.


In 2013, Spain will need to refinance around EUR 60bn of maturing Bonos and Obligaciones while issuing an additional EUR 45bn to cover its public deficit. In this analysis, we assume that the government’s targets for next year are reached. This amount needs to include the funding for the deficit of local administration since regional issuance is unlikely to resume next year. Similarly, the central government very likely will need to cover the EUR 15 billion of Spanish regional debt maturing in 2013, which as it stands now cannot be otherwise refinanced. Additional central government funding may also need to be provided for maturing Spanish international and agency debt such as FADE bonds for a further EUR 3-4bn.


All in all, the total amount of gross bond issuance from Spain in 2013 could be in excess of EUR 120bn. That is around 40% higher than this year, 10-20% higher than in 2009 and almost four times larger than the average amount of Spanish bond issuance recorded in the previous four years.

European event risk

Europe looms large. We expect next month to be filled with events that will shape the policy response to the debt crisis. We summarize the key points here:


On September 5, the Eurogroup will hold an informal meeting which most likely was set to discuss how to deal with a possible emergency request by Spain. The meeting is one day before scheduled issuance of Spanish government bonds. The ECB meeting on 6 September could bring more details on the new bond purchase capability announced in August, as well as heralding potential developments on the ECB’s collateral framework and liquidity provision. We perceive a clear risk that markets will be disappointed with the details, or lack thereof, forthcoming at this meeting, given the discord within the Governing Council on bond purchases. In our view, market pressure will ultimately be brought to bear before Spanish PM Rajoy requests an EFSF primary market bond buying programme.


Spain’s September 6 bond auction, after the August lull, will be a key focus for markets.


Next, on September 11 the EU Commission will unveil its proposals for a single banking supervisory authority while on the following day the German Constitutional Court is due to issue its ruling on the ESM. This will be another crucial policy event since only a favourable outcome would clear the completion of the ratification process of the ESM Treaty by Germany.


The Dutch general elections also are on September 12. Recent opinion polls suggest a rather fractured distribution of seats across the parliament, with the current five party caretaker coalition unlikely to return a majority. The Dutch Socialist Party looks likely to take the greatest number of seats, following a sharp increase in support. This party has already pledged to enact a referendum on the fiscal compact if it enters government for the first time after the elections. Other key decisions to be taken in September include the assessments by the EU and IMF on the first review by the Troika of the new Greek aid package and of the fifth and sixth reviews of the Portuguese and Irish programmes, respectively.


Also in September, Moody’s is expected to complete a review of its credit rating of Spain. If Spain is downgraded multiple notches, its bonds run the risk of being ejected from the major bond indices. The results of Spain’s bank stress tests are due to be released, too. Eurogroup and Ecofin meetings have already been scheduled for September 14-15. We expect these meetings to focus on the outcome of the ESM, EC proposals regarding bank supervision and possibly Spain bank stress tests.

Charts: UBS and Bloomberg

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Fri, 08/17/2012 - 08:56 | 2713724 mrktwtch2
mrktwtch2's picture

oh well at least its

Fri, 08/17/2012 - 08:57 | 2713728 hugovanderbubble
hugovanderbubble's picture

Doesnt matter, 


Spain has soared from 5.900 to 7.550.....


Magic algo trading

Short Selling Ban


System Rigged

Fri, 08/17/2012 - 09:08 | 2713760 diogeneslaertius
diogeneslaertius's picture



holographic algorithm strange loop sets are running on a hypercomputer in the basement of $GS


this produces unicorns and the UNICORMS WILL SAVES US

Fri, 08/17/2012 - 08:57 | 2713729 Jason T
Jason T's picture

Capital flight.. buy a Spanish bond's gone.  

Fri, 08/17/2012 - 08:59 | 2713735 sockratte
sockratte's picture

bloomberg told something about most since 1967

Fri, 08/17/2012 - 09:04 | 2713752 hugovanderbubble
hugovanderbubble's picture

Dont trust these stats.


Caja Ahorros del Mediterraneo has 27% Non Performing Loans

Bankia from 21-23%


So u think the rest is below 10%?==?????????????????????'''



Its called Mora Ampliada > 30%


Popular in default

Sabadell needs to raise capital

Caixa with troubles in hybrids



and the most important thing SPAIN NEEDS 500.000 Mn Euros to save SOVEREIGN and SUBGOVERNMENT BONDS  and italy close to 700.000 Mn $ in a massive aid .


Other thing is FALSE



Fri, 08/17/2012 - 08:59 | 2713737 youngman
youngman's picture

Its amazing the Spanish stocks are zooming....WTF?????  Is it like free Drinks on the Titanic...

Fri, 08/17/2012 - 09:08 | 2713757 Cognitive Dissonance
Cognitive Dissonance's picture

Last chance to dip your beak before reality sets in. The lambs are being brought to slaughter.

Muppets love Lamp Chops.

Yum Yum

Fri, 08/17/2012 - 09:13 | 2713772 jez
jez's picture

Nearly. There's a rumor going round about Bankia giving away another job lot of Superman beach towels. Everybody is on the beach right now, so this is killer marketing.

Fri, 08/17/2012 - 17:50 | 2715501 Dead Canary
Dead Canary's picture

And here I thought they didn't have a solution.

Fri, 08/17/2012 - 09:01 | 2713744 diogeneslaertius
diogeneslaertius's picture

hey and you all thought the internecine conflicts of Europe were over and it was the end of history


wait that is why we created a permanent military state in the west isnt it?


wait a minute what century is it

Fri, 08/17/2012 - 09:02 | 2713746 diogeneslaertius
diogeneslaertius's picture

were broke and china is the global superpower and europe is destabilized



Fri, 08/17/2012 - 09:04 | 2713751 Dick Darlington
Dick Darlington's picture

And naturally the most ridiculous sell side "analysts" from Goldman to HSBC and everyone else in between are recommending esp Spanish bonds to clients. Of course we know what that means except in case of HSBC whose London-based eurofanatic keeps giving destined to fail recos failure after failure. Naturally Blackrock, despite being at least 200% long equities, said they will buy spain and italy. Again. Merry goes round once again, fantasies and euphoria swings but REALITY keeps getting worse. Happy Friday all!

Fri, 08/17/2012 - 09:07 | 2713755 diogeneslaertius
diogeneslaertius's picture


(by which we mean impossible)


and so a specter casts its long shadow over all of Europe, no emperor, no tyrant (unless you count front men pencil pushing bureaucrats), what kings and lords failed to do for thousands of years via internecine conflict and was achieved in a handful of decades via deception and fraud by bankers, merchants, and NWO back-end management


Empire eUrope


ruled not by an openly attackable kingdom, but by a shadow cabal of interests


well, maybe it is the end of history after all eh folks?




Fri, 08/17/2012 - 09:07 | 2713756 diogeneslaertius
diogeneslaertius's picture

spain is just bleeding out at our feet

Fri, 08/17/2012 - 09:08 | 2713758 Inthemix96
Inthemix96's picture

Guess post, friday humour by inthemix96,

Just been to the wifes funeral this morning.  Met her parents for the first time today.

What a pair of miserable bastards those two are.

Fri, 08/17/2012 - 09:11 | 2713768 Abraxas
Abraxas's picture

Man! That's twisted. Besides, what does it have to do with the Spanish bonds?

Fri, 08/17/2012 - 09:15 | 2713781 Inthemix96
Inthemix96's picture


Its a joke mate.  Is friday humour cancelled today?  Mind, spanish bonds are tip top for binding your wife to the bed, pity I buried mine this morning.


Fri, 08/17/2012 - 09:21 | 2713800 Abraxas
Abraxas's picture

Hell, why not. This European debt issue starts to get on my nervs anyway.

Fri, 08/17/2012 - 09:10 | 2713763 hugovanderbubble
hugovanderbubble's picture

Spain will be downgraded to JUNK by Moodys


Fri, 08/17/2012 - 09:32 | 2713839 StychoKiller
StychoKiller's picture

Umm, isn't Germany gonna say somethin' re: the ESM in September as well?

Fri, 08/17/2012 - 10:10 | 2713972 Dareconomics
Dareconomics's picture

UBS estimates financing needs for Spain at about €8bn per month for the last third of the year. This number is too low. Spain has been deteriorating more rapidly than the politicians, bureaucrats and bankers are letting on.

Let's look at the facts. First, Spain surprised everyone Wednesday by asking for bailout money for its banks. The country was supposed to wait until September. I posted on this topic:…mits-bloomberg/

Now we find out that Spanish bad loans soared as borrowers are defaulting at a faster rate.

Second, Spain upped its budget deficit one point to 4.5% of GDP from 3.5%. But no one changed the estimated financing needs for the rest of the year!…o-4-5-from-3-5/

BTW, if you believe that the final number will wind up being only 4.5%, then I have some shares in the new Jon Corzine Euro Growth Hedge Fund that I'd like to sell you.

Here is my quick calculation of Spanish financing needs for the rest of the year...

Fri, 08/17/2012 - 10:19 | 2714005 Nobody For President
Nobody For President's picture

Moody downgrades Germany and the Eurocrats disavow the rating agencies and set up their own 'official' rating agency to rate soverign bond issues. Problem solved!

Fri, 08/17/2012 - 10:20 | 2714008 GoldbugVariation
GoldbugVariation's picture

In 2011, IBEX rose throughout August, peaked on 31 August, then saw new lows in the first half of September.  Just sayin'.

Fri, 08/17/2012 - 10:43 | 2714094 Monedas
Monedas's picture

Spanish word for !

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