Spanish Bonds Tumble as Scotland Swing Spurs Catalan Comparisons
Spain’s government bonds fell,
undermined by the Catalan region’s crescendoing push for
independence, as polls 1,000 miles away in Scotland showed
increased support for its own bid to break from the U.K.
Spanish 10-year yields climbed the most in close to four months, the biggest surge among euro-area securities. A survey today gave fresh evidence of Scottish support for leaving the 307-year-old union before voters decide on Sept. 18. Catalonia has defied Spain’s central government with plans to hold a Nov. 9 referendum on its own status. Most euro-area bonds fell as investor demand waned amid a lack of information on the scope of the European Central Bank’s asset-purchase plan.
“It’s a question of raising the flag to more event risk,” Harvinder Sian, a fixed-income strategist at Royal Bank of Scotland Group Plc in London, said today by phone. “Where the U.K. government has decided to guarantee all government debt, the Catalonia region is too large for the rest of Spain to absorb. It’s a much more problematic issue for Spain with regard to its debt markets.”
Spanish 10-year yields rose 11 basis points, or 0.11 percentage point, to 2.20 percent at 4:50 p.m. London time, the biggest daily jump since May 15. Earlier the yield surged as much as 18 basis points. The 2.75 percent security due October 2024 declined 1.065, or 10.65 euros per 1,000-euro ($1,289) face amount, to 104.930.
Spain’s five-year yield climbed 10 basis points to 0.94 percent. The rate on similar-maturity Italian debt rose five basis points to 1.05 percent.
Investors probably will be “highly attentive” to Catalonia’s yearly “Diada” celebration in two days, traditionally a magnet for nationalist demonstrations, Sian and fellow RBS analyst Marco Brancolini wrote in a note to clients. The region’s Parliament is set to vote on Sept. 19 on whether to approve a law calling for the referendum, though that could be overruled by Spain’s Constitutional Court. Should political tensions in Catalonia escalate, RBS would consider further trades to profit from the events, Sian said.
“If Catalonia were to become independent it would be a strong drag on Spain’s growth and doubts would resurface regarding the sustainability of Spanish public debt,” said Marius Daheim, a Munich-based senior fixed-income strategist at Bayerische Landesbank. “Liquidity rules. And if you want exposure to peripherals BTPs are the most liquid market where you can trade in size,” he said, using an abbreviation for Italian government debt.
Euro-area yields climbed today after plunging to records last week on the ECB’s announcement that it will buy privately owned securities. The average yield to maturity on euro-area government debt dropped to 1.012 percent on Sept. 5, the lowest since at least 1994, according to Bank of America Merrill Lynch indexes.
Governing Council member Erkki Liikanen today told reporters in Helsinki that ECB officials “haven’t made any decision” on the scale of ABS and covered-bond purchases.
France and Germany, the euro area’s two largest economies, will say they’re not interested in providing state guarantees for the program, according to a draft document obtained by Bloomberg News. That may limit the ECB’s ability to buy certain elements of ABS, or bundled loans that the central banks plans to purchase to unlock funding in the region’s stalling economy.
Euro-area government securities returned 10 percent this year through yesterday, almost four times their 2013 return, Bloomberg World Bond Indexes show. Spain’s have earned 14 percent, Italy’s 13 percent and Germany’s 6.9 percent.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Eshe Nelson in London at enelson32@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White, Mark McCord
Spanish 10-year yields climbed the most in close to four months, the biggest surge among euro-area securities. A survey today gave fresh evidence of Scottish support for leaving the 307-year-old union before voters decide on Sept. 18. Catalonia has defied Spain’s central government with plans to hold a Nov. 9 referendum on its own status. Most euro-area bonds fell as investor demand waned amid a lack of information on the scope of the European Central Bank’s asset-purchase plan.
“It’s a question of raising the flag to more event risk,” Harvinder Sian, a fixed-income strategist at Royal Bank of Scotland Group Plc in London, said today by phone. “Where the U.K. government has decided to guarantee all government debt, the Catalonia region is too large for the rest of Spain to absorb. It’s a much more problematic issue for Spain with regard to its debt markets.”
Spanish 10-year yields rose 11 basis points, or 0.11 percentage point, to 2.20 percent at 4:50 p.m. London time, the biggest daily jump since May 15. Earlier the yield surged as much as 18 basis points. The 2.75 percent security due October 2024 declined 1.065, or 10.65 euros per 1,000-euro ($1,289) face amount, to 104.930.
Spain’s five-year yield climbed 10 basis points to 0.94 percent. The rate on similar-maturity Italian debt rose five basis points to 1.05 percent.
Spread Bet
RBS recommends investors buy Italy’s five-year notes versus Spain’s, betting the yield spread between the securities will narrow to five basis points.Investors probably will be “highly attentive” to Catalonia’s yearly “Diada” celebration in two days, traditionally a magnet for nationalist demonstrations, Sian and fellow RBS analyst Marco Brancolini wrote in a note to clients. The region’s Parliament is set to vote on Sept. 19 on whether to approve a law calling for the referendum, though that could be overruled by Spain’s Constitutional Court. Should political tensions in Catalonia escalate, RBS would consider further trades to profit from the events, Sian said.
“If Catalonia were to become independent it would be a strong drag on Spain’s growth and doubts would resurface regarding the sustainability of Spanish public debt,” said Marius Daheim, a Munich-based senior fixed-income strategist at Bayerische Landesbank. “Liquidity rules. And if you want exposure to peripherals BTPs are the most liquid market where you can trade in size,” he said, using an abbreviation for Italian government debt.
Record Yields
Germany’s 10-year yield advanced four basis points to 1 percent, the highest level since Aug. 21.Euro-area yields climbed today after plunging to records last week on the ECB’s announcement that it will buy privately owned securities. The average yield to maturity on euro-area government debt dropped to 1.012 percent on Sept. 5, the lowest since at least 1994, according to Bank of America Merrill Lynch indexes.
Governing Council member Erkki Liikanen today told reporters in Helsinki that ECB officials “haven’t made any decision” on the scale of ABS and covered-bond purchases.
France and Germany, the euro area’s two largest economies, will say they’re not interested in providing state guarantees for the program, according to a draft document obtained by Bloomberg News. That may limit the ECB’s ability to buy certain elements of ABS, or bundled loans that the central banks plans to purchase to unlock funding in the region’s stalling economy.
Euro-area government securities returned 10 percent this year through yesterday, almost four times their 2013 return, Bloomberg World Bond Indexes show. Spain’s have earned 14 percent, Italy’s 13 percent and Germany’s 6.9 percent.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Eshe Nelson in London at enelson32@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White, Mark McCord
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