Spanish Sovereign

The immediate post-Brexit result landscape looked like a daunting one for eurozone periphery issuers. But just under a month later, one could argue they have never had it so good.

The lack of any concrete monetary easing announcements at a meeting of the European Central Bank’s governing council on Thursday could spark a rise in eurozone periphery sovereign yields, analysts have warned.

Spain drew nearly €30bn of orders for a new €6bn 10 year benchmark on Tuesday, as Cyprus tightened pricing by 20bp on a seven year deal.

Spain is lining up its second 10 year euro benchmark of the year, as bankers responded to a question about market conditions with: “It’s game on.”

Spain blew through its latest auction target with sales of debt at five, nine and 15 years, thanks to a drastically reduced cost of funds.

A stronger picture is emerging for the eurozone periphery late in the week, after the region’s governments suffered a spike in yields in the immediate aftermath of the UK’s vote to leave the European Union.

Spain’s 10 year bonds on Monday reversed all their Brexit driven losses, after the country’s voters showed a clear preference for pro-European Union parties at a general election on Sunday.

The UK may have knocked the eurozone periphery off a cliff as it stumbled on its way out of the European Union on Friday morning. Government bond spreads on Friday echoed those during the eurozone sovereign debt crisis. The gap between Germany and the periphery has opened up like the chasm that has developed between UK voters and the political establishment.

The first of three political risks to the stability of the capital markets faced passed without causing disruption this week, as a mechanism attributed with calming fears amid the eurozone sovereign debt crisis was declared legal.

A vote for the UK to exit the European Union next week is likely to intensely magnify a strong rush into safe haven assets, but some bankers are still confident that after the initial furore of a ‘Brexit’ there could be room for issuers eyeing euro deals in July to go ahead. And, if the UK opts to stay in the EU, issuers are likely to be lining up to print in July.

A rush to safe haven assets amid fears of a UK exit from the European Union crystallised higher Spanish bond yields at a bond auction on Thursday.

Catalonia’s finance minister will describe a Moody’s downgrade of the region as “artificial and irrelevant” later on Friday, according to GlobalCapital sources.