Spanish Markets Pare Losses as Madrid to Oust Rebel Catalans

Updated on
  • Bonds, stocks fall most in a week after Catalan vote
  • Political situation will get worse before it gets better: CA

Spanish Senate Empowers Rajoy to Oust Catalan Government

Spanish bonds and stocks pared losses as Madrid won the right to oust the Catalan government after the region voted to carry out independence.

The nation’s 10-year government bonds and the Ibex index both fell the most in more than a week after Catalan lawmakers voted to set up an independent state. It was an irrevocable step that augured a dramatic confrontation with Spanish authorities in Madrid, led by Prime Minister Mariano Rajoy, who won sweeping powers from the Senate to force the Catalans to obey national law.

“We think the sentiment surrounding the political situation will get worse before it gets better,” said Orlando Green, an interest-rate strategist at Credit Agricole SA. There is a risk the spread between Spanish and German bonds will widen further in the days ahead, he said.

Spanish 10-year yields rose five basis points to 1.59 percent, widening the spread over their German counterparts by eight basis points as the debt bucked a rally in other euro-area bonds. Spain’s benchmark IBEX 35 Index closed 1.5 percent lower, after dropping as much as 2 percent following the Catalan vote, the most since Oct. 4.

Madrid aims to remove from office Catalonia’s President Carles Puigdemont and the rest of the cabinet, to be replaced by people named by the central government.

“It looks like we will experience some short-term volatility based on exactly how Rajoy chooses to ‘enforce’ the Constitution,” said Rabobank interest-rate strategist Matthew Cairns, adding that continued bond-buying stimulus by the European Central Bank was still a supportive factor.

— With assistance by Anooja Debnath

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