Spanish Bonds Rise After Protests Seen Supporting Catalan Talks

(Bloomberg) -- Spanish bonds climbed after a weekend of mass demonstrations in favor of Catalonia remaining a part of the country applied more pressure on the regional government to back away from unilaterally declaring independence.

The yield on 10-year securities hit their lowest level since before the illegal referendum on Oct. 1 after an estimated 350,000 people attended a protest in the Catalan capital Barcelona on Sunday, while one senior member of the regional administration called for talks with the central government in Madrid. That's despite a declaration of independence potentially coming Tuesday, when regional President Carles Puigdemont meets with lawmakers.

Spanish bonds came under pressure in the wake of the secession vote, with yields climbing 11 basis points last week, the most since July. The risk has not seen much of a spillover to other markets however, while investors wait and see whether the situation takes a further turn for the worse. The securities were heavily bought Monday morning, according to traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly.

“After the past week's price action, Catalonia risk is largely in the price now,” Cagdas Aksu, an analyst at Barclays Plc, wrote in a note to clients. “We do not expect a sharp, sustained peripheral spread widening on further tensions.”

The yield on Spain's 10-year notes was down six basis points at 1.65 percent as of 9:47 a.m. London time, its lowest level since before Catalonia's unconstitutional vote, while that of their Italian counterparts was five basis points lower at 2.09 percent. The spread of the Spanish yield over that of their German peers tightened five basis points to 119 basis points.

--With assistance from Stephen Spratt

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Scott Hamilton, Neil Chatterjee