Let’s see why right now we are in an excellent time for investment in public debt. We should know that public debt or sovereign debt can be understood as a variety of debts that allow a State to keep up with individuals or any other country. In itself, it is a way to obtain financial resources from the State or from any other type of public power that is finally achieved by issuing securities.
This public debt, we could explain it as the financial tool that has a passive nature in terms of the issuing public entity, ie the country, province, state, department, district or municipality that makes the necessary searches in national or international markets, with the purpose to raise funds by promising payment and fixed income through a rate whose margin is a time that is stipulated by the bond.
In order to finance these activities, the public sector has the option of using basically three formulas:
There are a number of ordinary resources including taxes, public prices, transfers received, fees, etc; the creation of money through the procedure of monetary expansion and also the issuance of public debt.
In addition to these three tools, a country that can use the debt system as a political tool, specifically a political economy and in this way use the debt policy that allows it at a given time to achieve appropriate objectives according to the who is pursuing
Public debt may influence some way, directly or indirectly, through economic changes whose basic dependence is on the actual course of the economy itself, for example the way in which the money supply, interest rates, savings and its ways of being directed, which can be by national means or through the foreigner, or intermunicipal etc. In conclusion, the public debt is an obligation that the State owes to those loans that have been accumulated due to having received them and to which it is responsible by expressing them by means of the total monetary value of the bonds and obligations as a whole, which are in the hands of the people.
There is a great demand on the part of the markets that pushes the interest rates to place values at historical minimum levels.
After several years of avoidance, all these issues to take into account that are the risk, among many others, it seems that the markets begin to see with good expectations the values of the treasure. In such a way, that we have remembered again a name in which we all associated the Spanish public debt: T-Soros, this alludes to a character, American financier, George Soros, he is the main mentor in the world on issues to investment and profitability.
But more than just puns, the truth is that the public debt allows two important issues for investors who appreciate a lot; it’s about profitability and reliability. Especially in a structure like the current one in which the European Central Bank has minimized the interest of money up to levels of 0.15% and no longer pays the bank for these deposits, also arriving to effect the collection of 0.1% for them same.
Although it has increased greatly since 2011, it has now reached 96.80% of gross domestic product and reaches 989.925 million euros, a true record at historical level, it turns out that the public debt is it is among those that excite investors the most, above all for its reliability and performance that it is now presenting.
Let us take the example of two of the last operations that took place in the second half of June, in which the treasure placed bonds and bills worth 3,076 million and 3,530 million, respectively. During these transactions, it happened that the demand increased between 2.18 and 3.8, this was the demand for the securities offered. On the other hand, the great expectation for these issues is at a fairly sharp current minimum, we can speak of 0.110% in three-month letters and 1.412% in terms of five-year bonds.
For this reason, both obligations and bonds and bills turn out to be securities that are currently in high demand by investors, since they cover a large spectrum in terms of the term, these terms can range from three months of the letters to 30 years in the case of obligations.
It should be noted that the time for which this investment is made, is another important parameter and is the way in which this investment has to be carried out and also the interest received will be marked by it.
In this way, these terms of the letters are 3, 6, 9 and also 12 months. For this reason, they are considered a type of investment with very low risks, especially in view of market variations.
The other question or variable in this mathematical equation is the interest and the way in which said yield or profit will be charged. For the letters we have what is known as the discount, this means that normally we always know the amount that will be charged for the letters, since when they have subscribed, this is done for an amount lower than what is expected to recover; that moment in which interests are added to the principal. We put for example a purchase that is made for $ 950 if the day of the expiration is recovered about $ 1000, the previous explanation is clear.
In the case of bonds and obligations, one must go a step further, since the investment periods are now in different situations since they are placed through a competitive auction and therefore it is with this method that they will be set the interest they will earn.
In the last bond auction on June 18 it seems that interest has been one of the lowest in history 0.893% for three-year bonds.
And it is that the bonds have a term that can go from the three years to the five, for against the obligations they include from the 10 years, from the 15 and arriving until the 30 years, this supposes a big difference.
The treasure fund is another issue to consider, since it is another instrument, we already know the letters, bonds and obligations. But the treasure also offers alternatives for investment, they can be indirect. In the group where they are located, we have the investment funds that are invested in treasury securities and that are known as treasure funds.
As in reality they are investment funds, the operation they have is similar or we could say that, like any other fund in this case, the participants invest in capital and as a counterpart they get a share. The big difference is that the participations or commissions are limited and are minimal, to be part of the fund are too low.