| LONDON, Sept 6
LONDON, Sept 6 Spanish government bond yields
dipped below the 1 percent mark on Tuesday, continuing a strong
performance that defies growing political uncertainty in Spain.
Acting Prime Minister Mariano Rajoy's chances of forming a
government were dealt a blow on Friday after he failed to win
parliament's backing for a second time, increasing the
likelihood of another election.
Ratings agency Moody's on Monday warned that prolonged
political deadlock in Spain would be negative for its credit
However, the yield on Spain's 10-year bond
fell further in early trading on Tuesday to just below 1
percent, 4 basis points lower than at the start of the week.
"The political situation is unsatisfactory, but maybe we
have gotten reconciled to the fact that there will be some sort
of compromise eventually," said Norbert Wuthe, senior analyst,
government bond strategy at BayernLB.
"The PMI figures may also explain the outperfomance over
Italy," he said. Spain 10-year bonds yield 15 bps fewer than the
Italian equivalent, compared with 12 bps last
Activity in Spain's services sector expanded at a faster
pace in August, a survey showed on Monday, as business remained
brisk in the hotels and restaurants industry during a record
summer for tourism.
Wuthe said expectations of further monetary policy easing
when the European Central Bank meets later this week were
keeping euro zone government bond yields stable.
Other euro zone yields were flat to lower across the board
despite political risks elsewhere in the region.
Austria is set to sell seven-year and 10-year bonds via
auctions later on Tuesday just as Vienna is in the process of
buying back bonds of "bad bank" Heta, in a test for new European
None of this appears to have affected Austrian government
bonds, which have seen yields edge lower to 0.14
percent, according to Tradeweb.
The yield on Ireland's 10-year bond dropped by
1 bps to 0.42 percent, adding to a 5.5 bps fall on Tuesday, even
as Fitch warned that the Apple tax ruling may add to economic
uncertainty and increase political risks.
EU antitrust regulators ordered Apple last week to
pay up to 13 billion euros ($14.5 billion) in taxes plus
interest to the Irish government after ruling a special scheme
to route profits through Ireland was illegal state aid.
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(Reporting by Abhinav Ramnarayan; Editing by Richard Balmforth)