Spanish Bonds Underperform Italy’s as Podemos Gains Popularity

Updated on

Spain’s bonds are set to underperform their Italian peers for the fifth time in six weeks amid concern the rise of a Spanish anti-austerity party might lead to the sort of turmoil that followed Syriza’s victory in Greece.

Podemos, which has pledged to restructure $1.1 trillion of Spanish public debt, widened its lead over Prime Minister Mariano Rajoy’s People’s Party, according to a survey this week by the state polling company. By contrast in Italy, itself no stranger to political upheaval, Sergio Mattarella was elected president on Saturday as a candidate backed by Prime Minister Matteo Renzi. That marked a victory for the Italian premier, who overcame tensions within the governing coalition.

“The reason for Spain underpeforming Italy is totally related to investors’ concerns about the political landscape, in relation to what is going on in Greece,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “It’s something that will probably carry on in the near term. The link investors will make is that the next country with a strong anti-austerity movement will be Spain.”

The yield on Spanish 10-year bonds rose 4 basis points, or 0.04 percentage point, to 1.49 percent as of 4:55 p.m. London time, set to end the week seven basis points higher. The rate on similar Italian bonds also four basis points though was set for a two-basis-point decrease in the week to 1.58 percent.

Spain’s yield difference, or spread, to Italy has shrunk to nine basis points from 17 basis points at the end of last week, and more than 30 basis points on Dec. 29.

Podemos Popularity

Pablo Iglesias, leader of the year-old Podemos party, pledged last weekend before hundreds of thousands of demonstrators to restructure the nation’s debt if he can convert his opinion-poll lead -- improved from an October poll -- into election victory. At the moment, that is far from certain, as none of the most popular parties has more than 28 percent backing, when adjusted for historical voting trends, according to the CIS survey.

Greek bonds have slumped since Syriza, a party that also proposed renegotiating the country’s debt, triumphed at Jan. 25 elections, putting it at odds with the European Central Bank and other creditors.

The yield on Greek five-year bonds rose 80 basis points to 14.31 percent on Friday, up from 9.02 percent on Jan. 23.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE