What Is Madrid Fixed Income Market .MF?

Madrid fixed income market .MF represents the market that is used for trading Spain's public debt and other securities. Entities that trade Spain's public debt include the nation's central government, several regional governments, and some public-sector organizations.

Key Takeaways

  • Madrid fixed income market .MF is used for trading Spain's public debt and other securities.
  • Entities that trade Spain's public debt include the nation's central government, some public-sector organizations, and regional governments.
  • Madrid fixed income market .MF is part of the largest securities markets in Spain--the Madrid Stock Exchange.
  • The Madrid Stock Exchange is one of four members that make up the Bolsas y Mercados Españoles (BME).
  • Madrid, Valencia, Barcelona, and Bilbao security exchanges make up the BME.

How Madrid Fixed Income Market .MF Works

Madrid fixed income market .MF is part of the Madrid Stock Exchange, one of the largest securities markets in Spain, and one of the four members of the Bolsas y Mercados Españoles (BME). The BME is an organization designed to streamline Spain's four significant securities exchanges; Madrid, Valencia, Barcelona, and Bilbao, and it is the operator of all the equity markets and financial systems in Spain. BME has been listed since 2006.

A Brief History of the Madrid Stock Exchange

In 1988, Spain's incorporation into the European Monetary System (EMS) transformed the Spanish Stock Exchange. The EMS was developed as an attempt to stabilize inflation and stop large exchange-rate fluctuations between European countries.

In June 1998, the European Central Bank (ECB) was established. In January 1999, a unified currency, the euro, was born and came to be used by most member countries of the European Union.

If a country can continue to pay interest on its debt without refinancing or harming economic growth, it is generally considered stable.

In 1993, the Madrid Stock Exchange switched to all-electronic trading for fixed-income securities. In 1999, Spain's securities markets began trading in euros. Its regulatory body is the Spanish Stock Exchange Commission.

Public Debt in Spain

The term public debt generally refers to the amount of total outstanding debt that has been issued by a country's central government. It is also commonly referred to as sovereign debt. Public debt is often used by a nation to finance past deficits or to fund public development projects.

The total amount of a government's public debt obligations is often expressed as a percentage of gross domestic product (GDP). In credit analysis, a country's public-debt-to-GDP ratio is often used as a gauge of its ability to repay its debt. Typically, the more indebted a country is, the greater the risk it may be unable to settle its obligations. A country that cannot pay its debt usually defaults, which could cause a financial panic in the domestic and international markets.

In June 2018, the Bank of Spain reported that the government's public debt was equivalent to nearly 98% of its GDP. That number falls well above the average of 87% for the Euro Area overall in 2017. However, economists have not agreed to a specific debt-to-GDP ratio as being ideal, and instead, typically focus on the sustainability of certain debt levels.

Special Considerations

It's worth noting, however, that the ECB is ending its quantitative easing program and could potentially start to raise interest rates before 2018 is over.

This would likely be an unfavorable development for countries in the region that already have high public debt burdens.