DEBT. More Catalan bonds and new bonds of Madrid.
Friday, April 15, 2011
Mouth Snoring On Side
Hello again,
After a longer time than usual, I turn to take a moment to sit quietly and write about money. A few weeks ago, Victor, a reader this blog, emailed me asking my opinion on the new five-year bonds, which broadcasts the Madrid . In addition, a few days ago, the Generalitat of Catalonia, has begun a second bond issue one to two years.
The bonds issued by the Government of Catalonia are at a maturity of one and two years respectively. The first pay the investor an interest of 4.25% and, second, an interest rate of 4.75%. to this profitability, the investor must deducting the fees for maintenance and management placement institutions charge the same . The percentage of these commissions, do not know, but should be taken into account when calculating the return on investment.
However, the profitability of investment NOT match the actual cost to the issuer , as the Catalan Regional Government will have to pay in addition to the bond placement institutions, mainly savings and Catalan banks, some commissions between 0.75 and 2.5% for the bonds to a year and between 1 and 3.5% for two-year bonds . It dedir, the real cost to Catalonia bond to one year range from 5 to 6.75% and for bonds to two years, between 5.75 and 8.25% . In my humble opinion, a genuine outrage at a cost of financing very close to the bond interest paid by Greek and Irish, which will allow more than one grade with expression "junk "¡¡¡.
If in respect of the bonds Catalan could be easily knowledge through intensive advertising campaign this in many media, I really catches the eye, the absence of advertising that have the bonds issued by the Community of Madrid. Not a single newspaper ad or a single ad on the official website of the Community of Madrid ( http://www.madrid.org/ ). Nothing at all, as if no one wanted to convey to the public that debt issue.
These bonds could be contracted until last April 13, only through Deutsche Bank, for a period of five years, offering a fixed coupon of 5.65% annual payable on 11 March each year, from March 2012 to March 2016, although final returns to investors was 4.75% .
That 0.90% difference in profitability is caused because the price of the coupon is charged to the customer at 104.390% instead of 100%.
addition, Deutsche Bank charges a 0.10% quarterly, ie 0.40% annually, management and maintenance, so the real entabilidad r customer stays in a 4.35% APR.
addition, Deutsche Bank charges a 0.10% quarterly, ie 0.40% annually, management and maintenance, so the real entabilidad r customer stays in a 4.35% APR.
Well, addition to the limitations that both bonds of the Generalitat of Catalonia and the Community of Madrid, with respect to its liquidity as expected or at maturity or go to the illiquid secondary market, yes I would like to mention two issues are key for me , and that says much about the financial soundness and quality of the broadcasts mentioned:
1 . Letters to twelve months of the English Treasury will pay interest at 2.128%, the two-year bonds at an interest rate of 3.017% and five-year bonds at 4.389%.
Why Catalonia has to pay between 5 and 6.75%, when the English Treasury pays for the same bonus to one year the 2.128%?. Why have to pay three times as much?.
Why Catalonia has to pay between 5.75 and 8.25%, when the English Treasury pays for the same two years bond 3.0175?. Why have to pay almost three times as much?.
Well it seems logical to think that pay is about cost because the quality and financial soundness of Catalonia is three times lower than the English Treasury.
Why Madrid must pay 5.65%, when the English Treasury pays for the same five-year bond the 4.389%?.
Because there is a clear distrust towards the solvency of the Community of Madrid, which means that on cost, although incidentally, is much smaller than that seen in the case of Cataláunicos .
2. Two data are very illustrative for me : One, on the deficits of both communities and another on its debt in relation to your wealth, GDP generated.
The Community of Madrid has a deficit in the year 2010 equivalent to 0.69% of GDP. The Generalitat of Catalonia has a deficit in the year Equivalentea 2010 to 3.86% of GDP.
The average deficit of the 17 regions is 2.83% of GDP, although the target set by the State for such autonomic deficits is 2.4% of the GDP of Autonomy.
Catalonia was at the end of 2010 a debt 31.886 million euros, equivalent to 16.2% of GDP , one of the highest in Spain. Madrid had end of 2010 a debt of 13.492 million euros, equivalent to 7.1% of GDP , one of the lowest in Spain.
Catalonia was at the end of 2010 a debt 31.886 million euros, equivalent to 16.2% of GDP , one of the highest in Spain. Madrid had end of 2010 a debt of 13.492 million euros, equivalent to 7.1% of GDP , one of the lowest in Spain.
objectively analyzing data, everyone can draw their own conclusions. seems to me to buy debt from the Generalitat of Catalonia is neither reasonable nor responsible if you have a minimum of appreciation for their money. What I can not understand is why there is so much demand for these bonds when really the financial situation of Catalonia is the worst, when viewed objectively, the financial situation of the different 17 regions.
Although the financial situation of the Community of Madrid , is much better, no longer alarming. I do not like the lack of information and transparency in the issuance of those bonds . I do not like the "secrecy" with which they were issued, and I hate the silence in all media.
never I would not buy debt of an issuer whose credit is being challenged these days by the International Monetary Fund itself . Already voices are being heard at the European level and worldwide, claiming to Spain a drastic reduction in expenditure on the different Autonomous Communities and demanding control of their endless debt and its continuing deficits.
I do not think a good place to put our work savings.
A greeting to all
José Antonio
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