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Spain bonds slide again as Catalonia strikes defiant note
October 6, 2017 / 8:37 AM / 2 months ago

Spain bonds slide again as Catalonia strikes defiant note

* Catalan parliament to meet Monday, defying Spain, official says

* Spain 10-year bonds underperform, yields rise sharply again

* U.S. payroll numbers could add to Dec rate hike forecasts

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Abhinav Ramnarayan

LONDON, Oct 6 (Reuters) - Spanish government bonds underperformed the rest of the market on Friday after Catalonia’s head of foreign affairs said the region’s parliament would meet on Monday in defiance of a ruling by the country’s main legislative court.

As the standoff deepens between the central government and those who support independence for the wealthy northeastern region, Raul Romeva told the BBC that Catalonia’s regional parliament would make a decision on independence.

On Thursday, Spanish government bonds had rallied strongly as the Constitutional Court suspended a session of the Catalan parliament scheduled for Monday in which local leaders were expected to declare secession.

But after Romeva’s comments, Spain’s 10-year government bond yields were up 7 basis points to 1.76 percent, and the gap over the German equivalent widened to 128 basis points.

Yields on other Southern European bonds were up 2-4 bps while those on higher-rated debt were 2-3 bps higher.

Germany’s 10-year yield, the benchmark for the region, was up 3 bps at 0.485 percent.

“Uncertainty about whether Catalonian parliament will meet on Monday persists,” Commerzbank strategists said in a note.

The government is expected to issue a decree on Friday making it easier for firms to transfer their legal base out of Catalonia, which could deal a blow to the region’s finances as it considers declaring independence.

Those who voted in a banned referendum last weekend in Catalonia overwhelmingly backed independence from the rest of the country, driving up Spanish yields. Uncertainty over how hard the Catalan government will push the drive for independence has left government bonds extremely volatile this week.

The gap between Catalonia’s own bond maturing in February 2020 and the Spanish equivalent hit its widest level in over a year this week at 323 bps; on Friday, that spread was hovering near that level at 322 bps.

Friday’s other focus for markets will be U.S. jobs data due out at 1230 GMT, analysts said.

“The mood is for higher yields this morning going into (U.S.) non-farm payrolls, because it supports the views for a rate hike and the ECB will sketch out the path for tapering in October,” said DZ Bank analyst Rene Albrecht.

The U.S. labour market report will be keenly watched even though the data is likely to be affected by the bad weather that has swept through the country in recent weeks. A Reuters poll suggested 90,000 jobs will be added for the month of September.

The yield on 10-year U.S. Treasuries was close to 2-1/2 month highs at 2.36 percent.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Reporting by Abhinav Ramnarayan; Editing by Hugh Lawson

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