The current shaking of the financial markets, a spiral without stoppage and that does not let the US escape. nor the month of August, makes the media talk about the “markets” continuously. You imagine them directed by some paios with belly and wrinkles in front and who always make noses. We are told that they attack us and that they sink us, that they never have enough. It takes stock of the damages and among the wounded there is the stock market, the sovereign debt of the states and the risk premium, the star concept that has almost become the song of the summer. For this reason, it is increasingly more expensive to grant loans without payroll in any bank.
To understand minimally what happens, there are six essential keys:
1. Debt markets. States usually spend more than they can spend, although this does not mean they do not pay. They know that if one day they are delinquent nobody will want to make deals. That’s why they have no choice but to ask for money from those they have. They could ask their citizens, but they fear that they will not be created, and only do so from time to time. The most frequent is that they go to the debt markets, which means “open the doors to anyone who comes with money”: China has been one of these great creditors in recent years, and at this point the United States has already the ropes. When states ask for money, they promise to return them with interest. The debt market is fixed income, which means that the interest that is agreed upon will not fluctuate and is the one that will be paid yes or yes, which makes it very sweet for the buyers.
2. Investors and funds. The buyers of this market make astronomical figures go and they usually represent what is called “fund”. The most important are the investment funds, which at this point operate with 18 billion euros of investors. There are also pension fund products, which are estimated to total 14 trillion euros. The sovereign funds are those of the states of countries with abundant raw materials or with a fiscal surplus. But the ones that create the most instability are the high-risk funds, currently 1.5 trillion euros. There are other investors, such as the Central Bank, this week has caused a collapse by the statements of Jeana-Claudette Drichet, which has begun to buy debt from European countries worth 75,000 million euros to try to keep prices at a level reasonable. If you want to know at all times the most profitable investments we advise you the web in which to invest.
3. Treasure. The Treasury is an agency that depends on the Ministry of Economy and that makes the debt issuances of the state. This Thursday, the Spanish State, responsible for the stop of Spain to the markets, hung a poster offering bonds worth 3,500 million euros and managed to sell for 3,311 million. It will have to return 2,200 million from here to three years, with an interest of 4,8%, and 1,111 million from here to four years, with an interest of 4,9%.
4. Bonds, bills and obligations: the differences. Bonds and obligations are the assets that the Treasury issues to obtain financing by the State in the long term. The bills are short-term debt securities. The interest on the State bonds, which can be amortized at the head of 2, 3 or 5 years, is paid every year. The Treasury bills are amortized before – at 3, 6, 12 or 18 months – and have a nominal value of 1,000 euros each. The obligations of the State are long-term, 10, 15 or 30 years.
5. Rating agencies. Buyers usually do not want to help wipe the state’s debt, but to do business and recover the money with the maximum interest. That’s why, when there are offers they ask questions, they look at it, they make faces, they march, they come back, they look at graphics, they read the newspaper, they meet rumors and they stop to listen to the visionaries of the future: the already famous rating agencies, Standard & Poor’s, Moody’s, Fitch. They are private entities that this summer have already revolted Europe and, since this Saturday, the United States, because of the enormous influence they have on the markets.
6. Risk premium. The bonds have higher or lower interest depending on who sells them. Investors take into account the evolution of the stock market. Green graphics give prestige and allow investors to pay less interest. It is not the same as the bonus of a bad paradist, nobody knows if he will have to close the barrack, that of a reliable merchant who has earned the reputation of paying trinco trinco. And this changes the risk premium: the overcharge to buy debt from an unreliable country. When we talk about the Spanish risk premium, we compare the good Spaniards with the Germans, which are the benchmark because Germany is considered solvent. If the good 10-year German is paid at 2% and Spanish at 6%, a simple rest tells us that the risk premium is 4% or, in other words, 400 points. This week the Spanish premium has surpassed the 400 points, in a historical record that has been one of the great zarandeos.