The safest options for the investor reach a ceiling. The beloved Treasury bills or deposits are adjusting their remuneration these weeks with the central scenario that the European Central Bank (ECB) will lower rates in a few months. It is noticeable in the latest auctions and among the entities on the continent, which are limiting payment.
“When the expectation is that interest rates will fall, returns and assets adjust to that. The letters do it faster because their term is shorter (up to 12 months),” explains Antonio Castelo, iBroker analyst. Once the January auctions are closed, terms of one year or less reduce profitability in general, such as 3, 9 and 12 months, while it grows in longer terms, both medium (3 years) and very long (15 years). . “They continue to be the star asset and will remain that way this year. Although there is a reduction in profitability, there is nothing better in terms of risk, performance and liquidity,” says Sofía Antón, director of AurigaBonos.
“In 3 or 6 months today it may give a little more return, but when that debt matures and you have to renew, you may later find a lower profitability,” comments the director. The recommendation is to bet on the long term as a way to protect yourself from further declines. “The rates will go down. If you invest today for 12 months at 3.30% (reference from the last auction), in January 2025 when you renew the debt you may pay less. Now is the time to extend the investment terms to 3 and 4 years, so that you can secure that 3.30% for several years,” he exemplifies.
In the middle of last year, one-year bills were around 3.80%: “One thing is clear, rates are no longer going to rise, we already have the limit above and the investor will move to longer terms, where the payment can be more stable,” agrees Castelo. It means returning to normal, paying more for the long-term debt. “Lately it had been the other way around due to instability and accelerated rate rises.”
Without crystal balls, it is certain that the guys will lead the way for what happens. Today the reference rate in the eurozone is 4.50%. The market was anticipating a rate cut that has turned out to be accelerated: the ECB does not expect the first cut before the summer, its president, Christine Lagarde, said last week. Analysts were pointing to spring. “If we manage a decrease of 75 points in rates this 2024 in the best of cases, if now with an operation the profitability is 3.3% it could remain at 2.5% at the end of the year,” says Castelo. Barring major surprises, “regardless of whether there is a decline or not, we will see a maintenance or continuous gentle decline,” Antón predicts. He doesn't see the return much below 3%, he adds.
In addition to lengthening horizons, alternatives can be explored. In terms of 3-4 years and with ratings of at least BBB, where Antón recommends moving, the European automotive corporate bonds stand out, at 3.5%. If you don't like it, the Italian debt pays 3% in these multi-annual terms and the German and French debt pays 2.5%, review. “Here the investor's risk must be measured.”
In deposits, another product linked to conservative savings, the picture is similar. “Some banks have preferred to get ahead of the ECB and lower the profitability of their best offers,” comments Mónica Pina Alzugaray, head of the Raisin platform in Spain. To talk about a clear trend, however, she asks to wait for news from Frankfurt.
For now the cuts are in tenths, but they drip every week and only a handful of European firms now offer more than 4% APR, in different sections. The Italian Banca Progetto or Banca Sistema, the Portuguese Haitong, the Belgian CKV or the French Younited, which were among those that paid the most, have not escaped. However, he still sees sense in the product. If you can only access the short term, “very good six or nine month options” stand out, with payments of up to 4.20% APR on the platform and protection of European deposit guarantee funds. Again, a broad horizon pays off. If there is a possibility, “by contracting long-term deposits now you ensure a higher return if rates fall.”
In Spain, before it finishes encouraging, the payment of savings threatens to moderate. The best offers on deposits exceed 3%. As an example, EBN gives 3.40% APR for 2 and 3 years, Pibank 3.34% APR for 12 months, SelfBank 3.1% APR for 6 months and OpenBank 3.07% APR for the same section.
