Spanish Bonds to Suffer as Podemos’s Iglesias Rises in PollsEsteban Duarte and Andre Tartar
Pablo Iglesias’s pledge to restructure $1.1 trillion of Spain’s debt could make investors more cautious about the nation’s bonds, a survey showed.
The rising popularity of Iglesias’s anti-austerity Podemos party could mean Spain pays an extra 50 basis points on securities maturing in ten years, according to the median estimate of nine economists surveyed by Bloomberg News.
Podemos, an ally of Greece’s Syriza, has been gaining in popularity as Spain heads into an electoral marathon to choose governments in 15 regions including Catalonia and Madrid before the general election due around the end of the year. Iglesias, who leads the one-year-old party, pledged Jan. 31 before hundreds of thousands at a rally in Madrid to restructure the nation’s debt if he can convert his opinion-poll lead into a victory at the ballot.
“In case of a Podemos clear victory, the 10-year-spread between bonos and bund may increase as much as 50 basis points,” said Jean-Louis Mourier, an economist at Aurel BGC in Paris, referring to Spanish and German securities. “If a debate emerges about a possible repudiation of part of the Spanish debt, tensions would be more intense on the short or medium part of the yield curve.”
The premium on Spain’s 10-year bonds over German bunds widened 4 basis to 129 basis points as of 9:55 a.m. in Madrid, as investors’ risk aversion increases after Greek Finance Minister Yanis Varoufakis refused last night to meet European demands that his country request an extension of its existing bailout program.
Investors have already started to price in the country’s political risks. The additional yield investors demand to hold Italian 10-year bonds instead of Spanish securities with similar duration has fallen to 6 basis points from 41 basis points in October, according to Bloomberg generic bond yields. That’s even as forecasts show Spain’s economy will grow almost four times as fast as Italy’s this year.
Support for Podemos is at 24.5 percent, compared with 22.5 percent for Prime Minister Mariano Rajoy’s People’s Party, according to a My Word poll for Cadena Ser radio released Monday. Backing for the Socialists is at 19.5 percent.