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THE SPANISH DEBT MARKET

This overview provides a macroeconomic perspective and insights into the funding program of the Spanish debt market in 2007. It also includes information on the composition and size of the Spanish debt portfolio.

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THE SPANISH DEBT MARKET

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  1. THE SPANISH DEBT MARKET

  2. THE NEW 30 YEAR OBLIGACIÓN • Maturity: July 30, 2040 • Short First Coupon: July 30, 2007 • Initial Size: minimum €3 billion • Outstanding Amount at end-2007: €5 billion

  3. AGENDA • Macroeconomic Perspective • Funding Program 2007 • Spanish Debt Portfolio

  4. Macroeconomic Perspective: Sustained outperformance Real GDP growth (in %) 2007 Q1: 4.1 Source: European Commission (Spring 2007 Forecast)

  5. Macroeconomic Perspective: Investment and saving Net lending / borrowing: components (as % of GPD) Investment (% YoY, volume growth) Source: National Statistical Institute (INE)

  6. Macroeconomic Perspective: Spanish real estate Factors supporting upward trend : Balanced adjustment : • Expected to remain robust • Moderate adjustment: Mortgage rates already registered the highest increase in the last 6 years • Supportive • Increase in household income • Monetary conditions • Demographic factors Housing trends Source: Ministry of Housing

  7. Macroeconomic Perspective: Inflation Consumer Price Index (% YoY) Industrial Price Index (% YoY) Source: National Statistical Institute (INE)

  8. Macroeconomic Perspective: Fiscal discipline General Government balance (% of GDP) General Government debt (% of GDP) Source: European Commission (Spring 2007 Forecast)

  9. Macroeconomic Perspective: Fiscal discipline State financing: capacity (+) or requirement (-) (in million euro) In ESA-95 terms Source: Ministry of Economy and Finance

  10. Macroeconomic Perspective: The legal side • The Budgetary Stability Law was approved in2003to ensure fiscal responsibility at all levels of Government and has been reformed in2006: • To avoid pro-cyclical bias:all levels of Gvt must post budgets: • - In upturn (GDP > 3%): surplus required. • - In downturn: max deficit of 1%GDP (State 0.2%). • Additional room for R&D:0.5% GDP (State 0.2%). • Explicit no bail out for regions. • Social Securityobjectives establishedseparatelyfrom those of the Governments.

  11. Macroeconomic Perspective: Social security Pension reforms agreed by consensus in 2006: - More years of contributions (15 vs 12.6) and more incentives to work beyond 65. Social Security Reserve Fund: Portfolio breakdown (in billion euro) Source: Spanish Social Security

  12. AGENDA • Macroeconomic Perspective • Funding Program 2007 • Spanish Debt Portfolio

  13. 2007 Funding Program: Forecast Vs Execution Central Government Funding Program(Effective amounts in billion euro) • New forecast (cut from €7.5bn): • 4.20% Jan 37: €0.9bn (closed) • New Jul 2040: max €5bn Data on a budget basis Source: Spanish Treasury

  14. 2007 Funding Program : Liquidity Outstanding per bond(data in billion euro as of May 2007) Average Outstanding:12.10 Source: Spanish Treasury

  15. AGENDA • Macroeconomic Perspective • Funding Program 2007 • Spanish Debt Portfolio

  16. Spanish Debt Portfolio: Composition and size Central Government Debt outstanding(in billion euros and nominal terms) Source: Spanish Treasury

  17. Spanish Debt Portfolio: Distribution by holder Government Bonds by Holder(Term investment) Source: Spanish Treasury

  18. Spanish Debt Portfolio: Non-resident holdings Government Bonds by Country(Term investment) Government Bonds by Type(Term investment) Source: Spanish Treasury

  19. Spanish Debt Portfolio: Trading volumes Outright trades in Letras(Average daily volume in € million) Outright trades in B&O(Average daily volume in € million) Source: Spanish Treasury

  20. Thank you for your attention For more information please contact:Soledad Nuñez- Head of the TreasuryDirectorTesoro@tesoro.meh.esEnrique Ezquerra-Head of the debt departmenteezquerra@tesoro.meh.esMatias Viola- Liability management and foreign currency fundingmviola@tesoro.meh.esEnrique M. Quilis-Risk Managementequilis@tesoro.meh.esFederico Ferrer- Senior Advisor fferrer@tesoro.meh.es Rosa M. Moral-Advisorrmmoral@tesoro.meh.es tlf: 91 209 95 29/30/31/32fax: 91 209 97 10Reuters: TESOROBloomberg: TESOInternet: www.tesoro.es

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