Spanish Bonds’ Worst Week Since June Shows Concern on Politics

Spain’s Political Deadlock Creating Confusion and Change
  • Deadlock highlighted as acting premier seen losing second vote
  • Nation’s bonds rallied in previous month on economy, ECB

Spain’s 10-year government bonds had their worst week since June as the nation’s political stalemate came back into investors’ focus.

The securities pared their weekly loss on Friday hours before Acting Prime Minister Mariano Rajoy was set to go before a second confidence vote in a week in his quest to secure another term in office. The Bloomberg Spain Sovereign Bond Index declined 0.9 percent in the week through Thursday, its worst performance since Dec. 4.

The 61-year-old caretaker premier was widely expected to lose again in this evening’s vote, which has a lower threshold for victory. That would move Spain a step closer to another general election in December -- its third in a year -- prolonging the political deadlock through autumn. Before the investiture votes, the country’s sovereign debt had gained in five of the past six weeks as economic growth, central bank purchases and Rajoy’s pact with another party generated investor optimism.

“Without political crossfire, Spanish bonds were bought -- now they had to deliver and failed,” said Rene Albrecht, a rates and derivatives analyst at DZ Bank AG in Frankfurt. “This upset investors who took profit on their gains.”

The nation’s 10-year bond yield fell 3 basis points, or 0.03 percentage point, to 1.03 percent as of the 5 p.m. close in London. That cut its increase in the week to eight basis points, still the most since June 17. The 1.95 percent security due in April 2026 rose 0.255, or 2.55 euros per 1,000-euro ($1,115) face amount, to 108.415 on Friday.

Summer Rally

The previous rally in the Iberian nation’s bonds had sent yields on the 10-year securities to a record low on Aug. 18. Europe’s higher-yielding sovereign debt including Spain’s has benefited from speculation that the European Central Bank will step up stimulus in the wake of the Brexit vote, as well as broaden rules of its asset-purchase program to address a scarcity problem.

Rajoy was defeated by 180 votes to 170 in a confidence ballot on Wednesday as his party’s traditional rivals, the Socialists, joined the anti-establishment group Podemos to block his candidacy. Without any indication of a shift in positions or abstentions, Rajoy is likely to lose a second vote on Friday, where he’d only need a simple majority to secure a second term.

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