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What are Spain's 'letras del tesoro' and are they worth investing in?

The Local Spain
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What are Spain's 'letras del tesoro' and are they worth investing in?
if you are interested in shorter term profitability, most experts agree that there are more attractive fixed-term deposits available than letras del tesoro. Photo: Skitterphoto/Pexels

Looking for another type of investment opportunity in Spain and heard a bit about 'letras del tesoro'? Understanding what they are, how they work, and whether they are really worth it will help you decide.

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What are letras del tesoro?

Letras del tesoro, literally meaning treasury bills, are short-term fixed income securities issued by the Spanish treasury. 

According to the official treasury website definition: “Letras del tesoro are short-term fixed income instruments which exist only in book-entry form.They were created in June 1987, when the book-entry system was established. The Treasury currently issues three types of letras del tesoro, each one with a different maturity [length]: three-month letras del tesoro; six-month letras del tesoro; nine-month letras del tesoro; [and] twelve-month letras del tesoro."

The website also notes that bids must be for a minimum value of €1000, or in multiples of €1000.

 

How do they work?

So, how do they actually work?

Treasury bills in Spain are issued by auction. Investors submit their purchase requests to the treasury, and it decides the minimum price they agree to receive. In the case of securities issued at a discount, the purchase price of treasury bills may be lower or higher than the amount that the investor will receive at the time of repayment. The difference between the refund price and its purchase price will be the profitability generated.

READ ALSO: The best high-yield savings accounts in Spain

Are they tax exempt?

Crucially, the returns on treasury bills in Spain are free from withholding tax for both personal income and corporate tax, however the returns must be considered part of your income more broadly for taxation purposes (provided that you are a Spanish tax resident) when you make your annual tax return.

If you’re not a Spanish resident, returns on letras del tesoro obtained by non-residents are not taxed in Spain.

READ ALSO: Bank overdraft in Spain: What are the risks and penalties?

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Are letras del tesoro worth it?

One of the benefits of fixed income products such as treasury bills is that they allow you to know their profitability in advance. That is, those who invest in treasury bills know the interest they will receive and the date of payment.

Traditionally, however, in terms of profitability treasury bills are lower than that of other equity assets, but so is the risk assumed. It really depends what you're looking for.

According to online comparison website Keliso.es, after the two most recent auctions (November 2023) buying Spanish treasury bills have largely ceased to be worthwhile for now. Profitability fell month on month from October and now stands at 3.7 percent on average. In November, the average interest on treasury bills fell on all markers, with decreases ranging from -0.11 percent to -6.63 percent depending on the term.

The profitability of Treasury bills now range from 3.552 percent to 3.709 percent, according to the Novemeber auctions. Thus, 3 month treasury bills now offer an average interest of 3.552 percent; 6 month bills 3.709 percent; 9 month bills, 3.686 percent; and 12-month Treasury bills, 3.606 percent.

Therefore, according to Kelisto, if you are interested in shorter term profitability (three, six and 12 months) or have higher savings to invest (from €10,000 and up), there are more attractive fixed-term deposits available.

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