Regional Government Bonds: Spain

Some investors may have been surprised by the volume of new issuance that has emerged over the last six to 12 months from Spanish autonomous communities. They need not be, says Javier Guzman, Madrid-based director of global capital markets at Société Générale, which has led many of the recent new issues in Spain’s increasingly vibrant and diverse sub-sovereign market. This is because issuance patterns are dictated by a clear budget law, which dictates that all public sector entities are required to maintain balanced budgets when national GDP growth is 2% or more. Only when growth dips below this level does the pact allow for the accumulation of small deficits equivalent to no more than 1% of the region’s GDP. The depth of the economic crisis in Spain led to an agreement between the government and the 17 autonomous communities allowing the regions to incur an extra deficit equivalent to 2.5% of their GDP in 2010, 1.7% in 2011 and 1.3% in 2012.