The men who would be kings of Catalonia.

Scotland's Scaring Catalan Bonds

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
Read More.
a | A

Spanish foreign minister Jose Manuel Garcia-Margallo weighed in on the Scottish referendum today, telling his fellow parliamentarians in Madrid that "secession would be a catastrophe for Scotland." What he means is that independence for Scotland would accelerate the momentum in his own country foran independent Catalonia.

Some 1.8 million demonstrators flooded Barcelona on Sept. 11, demanding that Catalonia holds a referendum of its own in November, according to a local police count that conflicts with the official version citing 500,000. The government says it will nullify any such efforts through the courts, while Catalan President Artur Mas has said his pledge to give voters a say on going solo is dependent on not breaking the law.

The value of Catalonia's 1.3 billion euros ($1.7 billion) of 4.75 percent bonds repayable in June 2018 has slumped, as opinion polls showed an increasing likelihood of Scotland voting to secede at its referendum tomorrow. The bonds currently trade at about 109 percent of face value, down from more than 111 percent in the first week of this month, widening the gap between the yields on Catalonian and Spanish government debt:

Spain's El Pais newspaper reports that the state prosecutor is meeting his Catalonian counterparts tomorrow to discuss how the government would deal with an illegal referendum in the region. That suggests the government is taking the movement increasingly seriously.

In price, is knowledge; Catalonia's bonds are telling us there is a non-negligible risk that in a matter of weeks, Spain might find itself in a similar position to the U.K., facing a break-up of its nation.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Marc Champion at mchampion7@bloomberg.net