Spanish Bonds, Stocks Rally as Catalan Secession Push Stalls

Updated on
  • Ibex 35 Index is headed for the biggest gain since April
  • Bonds pass first test since Catalan referendum, ABN Amro says

Spanish stocks and bonds extended a rally after prospects for an imminent declaration of independence from Catalonia receded.

The Ibex 35 Index was set for the biggest gain since April as Spain’s top court suspended a plenary session call for Monday, which could have started a 48-hour countdown to a formal declaration of secession from the central government in Madrid. Separately, it emerged that Catalan separatists were looking at ways to put off a definitive declaration of independence and create space for a negotiated settlement with Spain.

Thursday’s rally pares a decline in Spanish bonds and stocks this week after Catalan separatist leaders held an illegal vote on Sunday and threatened to declare independence within days. That now seems a more distant prospect, though there are few signs of a thaw in relations between the national government and a region that accounts for a fifth of the country’s economy. Debt rating agency DBRS is scheduled to make an announcement on the nation after markets close on Friday.

“Markets were looking for a rational solution, and it now looks like we’ll get one in the medium term,” Alberto Espelosin, a fund manager at Abante Asesores Gestion, said by phone from Madrid. “It’s good to see both sides willing to have some kind of dialog.”

The yield on the nation’s 10-year bonds fell seven basis points to 1.69 percent, while the Ibex 35 Index rallied as much as 3 percent, set for its biggest gain since the first round of the French presidential elections in April. The extra premium that investors seek to hold them over comparable German bunds narrowed nine basis points to 124 basis points.

Bond Auction

Spanish bonds earlier rallied after investors snapped up a combined 4.5 billion euros ($5.3 billion) of bonds at an auction Thursday. Most of those sold were a new five-year note, with the so-called bid-to-cover ratio rising to 2.12 from 1.88 seen at the previous sale of the tenor on Sept. 7.

“It looks like that Spanish bonds passed their first test amid increased political tensions with the region Catalonia,” said Kim Liu, a fixed-income strategist at ABN Amro Group NV. Still, “it does not mean that the Catalonian tensions have disappeared. In our view these tensions will continue and could ignite with the potential for more upward pressure in Spanish securities versus both German and Italian bonds.”

Spain’s Treasury also sold 1.1 billion euros of debt maturing in 2029 with demand reaching 2.5 times the amount sold, compared with a bid-to-cover of 1.67 at the previous auction on April 20. The average yield also fell fractionally to 1.87 percent versus their previous sale.

Over in the stock market, Catalan lenders Banco de Sabadell SA and CaixaBank SA rose 6.2 percent and 4.4 percent, respectively, while Spanish companies accounted for the top five performers on the Euro Stoxx 50 Index. The Spanish benchmark has still lagged all other major developed markets this month.

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