The Treasury harnesses liquidity to generate additional income Financial markets

The public treasury exploits excess liquidity. The new price environment creates the right conditions for the organization led by Carlos Budde, in line with the rest of the euro area treasuries, to once again benefit from liquidity auctions. This means that instead of leaving its surplus cash parked in the piggy bank of the Spanish Central Bank, it will carry out intraday operations with financial entities that offer something…

The public treasury exploits excess liquidity. The new price environment creates the right conditions for the organization led by Carlos Budde, in line with the rest of the euro area treasuries, to once again benefit from liquidity auctions. This means that instead of leaving its surplus cash parked in the piggy bank of the Spanish Central Bank, it will carry out intraday operations with financial entities that offer something more, according to sources familiar with the matter. These are so-called liquidity auctions, processes through which the Treasury will seek to generate greater income.

This strategy, which will be used again in January 2024, was common practice between 2001 and 2017. That is, until the era of zero interest rates. Informed sources point out that the recent increase in interest rates by the European Central Bank (the reference rate is 4.5%) makes it interesting once again to transfer liquidity to the market to benefit and achieve additional profitability. The strategy takes on a special role today because for the first time in four decades, the Bank of Spain will not contribute income to the treasury.

The entities that can participate in this process are those that play an important role in the state treasury. That is, they cooperate with the treasury in selling debts or participating in the collection of the tax authority. In the absence of the Treasury updating the data, in 2022, Deutsche Bank, BBVA, JPMorgan, Banco Santander, Barclays, Bank of Ireland, Société Générale and Credit Agricole were the depository banks involved in the sale of bills, bonds and obligations.

Liquidity auctions are short-term operations that do not affect the institution’s ability to meet maturities. The Treasury’s priority objectives are to ensure security and liquidity.

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