Spanish Sovereign

Many in the financial industry in Madrid believe Catalonia’s independence adventure is over. But plenty in Barcelona expect lengthy spells of uncertainty after Spain’s government moved to end the region’s autonomy.

The public sector debt market is providing high volumes of funding at astonishingly tight spreads as investors brush off political concerns and scramble to pick up what supply remains for 2017. However, central banks around the world are weighing on investors’ minds.

There was a time, not so very long ago, when a ‘yes’ vote in a secession referendum in the most prosperous region of the eurozone’s fastest growing economy might have sparked some concerns. Those days appear to be behind us.

By 10am on Monday October 16, Catalonia's president Carles Puigdemont must clarify whether this week’s declaration of independence was firm. Many in capital markets have dismissed the possibility of Spain’s constitutional crisis causing market volatility, but the Catalan government is approaching its week of reckoning in combative mood, write Lewis McLellan and Victor Jimenez.

Tuesday’s speech from Catalan president Carles Puigdemont went some way towards restoring a sense of calm in Europe, as he stopped short of making a unilateral declaration of independence from Spain, instead offering to negotiate with the national government.

Bond markets remain sanguine about the declaration of independence by Catalonia's president Carles Puigdemont on Tuesday, but that could change sharply if Spain clamps down with force.

Spain and Catalonia could be heading for a “Pyrrhic victory on both sides” in terms of their capital markets access, if they fail to reach an agreement on the latter’s status after a disputed independence referendum on Sunday, according to capital markets lawyers.

The buy-side is slowly removing European duration from portfolios in anticipation of the European Central Bank cutting its asset purchase programme, according to an investment director. Meanwhile, new cash flowing into the eurozone periphery is likely to go to Italy over Spain while uncertainty lingers over Catalonia’s future.

Clashes during Catalonia’s disputed independence referendum over the weekend have taken their toll on Spanish government bonds ahead of a Bono auction on Thursday. But the country’s borrowing costs could steepen further if, as expected, the Catalan authorities declare independence, said analysts.

The Spanish central government’s stand-off with the executive in Catalonia over an upcoming independence referendum is failing to worry Bono investors — but some bankers believe the market could soon be hit by a bout of volatility unless an agreement is reached. The Spanish situation was in marked contrast to the country’s western neighbour, as Portugal enjoyed a strong week after regaining investment grade status from S&P.

Guarantor: Kingdom of Spain

A pair of European agencies landed in euros on Tuesday, attracting huge books and tightening their spreads, indicating a promising backdrop for NRW.Bank’s green bond scheduled for Wednesday.