the inflation shock and the rate move story
The economy is dealing with a sudden inflation spike and a swift tightening of rates by central banks to cool price pressures. Households and investors have to weigh the impact of higher borrowing costs against their goals for savings and growth. In Spain, quoted treasury letters have seen a notable rise in what families pay to borrow for short periods. By the end of June, data from the Bank of Spain showed a cash volume around 16,608 million euros in short term debt securities, a figure that marks the highest level in the series since the start of reliable statistics in 2002 and far above the 19 million recorded in the same month of 2022. In the same period, individual and corporate investment in the Ibex 35 rose by 14.6 percent, reaching 86,743 million. Yet the selectivity gauge climbed even more, up 18.5 percent, indicating about 2.95 million euros withdrawn by households from the cited companies across the twelve months.
There are clear policy choices behind these movements. The European Central Bank is intent on breaking the inflationary spiral. To that end, the monetary authority for the euro area has raised the main deposit rate from 0 percent to 4.25 percent between July 2022 and the most recent ascent in mid-2024. The deposit facility, which is the rate paid on banks’ reserves, shifted from -0.5 percent to 3.75 percent in the same period. This move pushed bond yields higher. In June of last year the Treasury offered three month and one year securities with yields around -0.35 percent and 0.504 percent respectively; by last June the landscape showed yields of 3.263 percent and 3.468 percent for comparable maturities.
less favorable terms from banks
The surge in household bond purchases played a role in banks delaying adjustments to time deposits, even with higher official rates. The average interest rate on new deposits stood at 2.21 percent in June 2022 and has remained below the returns paid on Letras del Tesoro and well under the eurozone average of 2.7 percent. A large portion of household cash remains in current accounts, a share that sits around 91.3 percent and remains higher than the euro area norm. Savings in time deposits rose to 85,890 million, up 18 percent, while the overall balance across families with bank accounts fell slightly to 992,854 million.
The Letras del Tesoro found themselves ahead of banks in the data for the first time, and the gap widened by June. In the previous two months, about 23.4 percent of the 71,004 million euros in circulation were in these titles, a rate that stood at 0.02 percent a year earlier. Ownership by households surpassed banks, companies, mutual funds, and other sectors, though shifts in ownership reflect ongoing adjustments across the financial system. Foreign holders remain a factor, even as their share dips. Investment patterns show a reduction in certain holdings as households rebalance portfolios.
stabilization signals emerge
Early in the year there is a sense of stabilization as Letras begin to accumulate in the portfolios of individuals. Bank queue lines and Treasury website load times hint at strong demand and some frictions in processing. The expected trend is a steadier growth in Letras across the months, with a softer pace in January and February and a more measured rise in June. Recent auctions hint at this stabilization, with yields holding firm yet not advancing as aggressively as before. For nine month bonds, the yields have edged down slightly from their peak earlier in the year, signaling some softening in the rate environment and a possible pause in rapid increases.
The government continues to service its debt at high rates, paying the interest due on these instruments. The nine month securities show yields that remain elevated but down from a recent peak and the quarterly rate remains a factor for several years ahead. This reflects broader European trends rather than a single country anomaly. The path for households depends on how the central bank conducts policy in the coming months. At the July meeting the institution signaled openness to holding steady or raising again, while market expectations lean toward a pause around mid-September. The current view is that a temporary stabilization is likely to persist as bond yields settle.