Meanwhile, In Spain…

With Italian assets seeing some modest relief today, attention has drifted across the border to Spain where 2Y bond yields have burst back above 0.00% (it does read a tad anti-climatic) amid uncertainty surrounding a looming Friday confidence vote on PM Rajoy’s government.

While the market has already begun to price in this uncertainty – seeing a significant chance that Rajoy will be defeated – Bloomberg, citing unknown sources, reports the same predictions

  • BASQUE NATIONALISTS ARE SAID TO BE READY TO BACK RAJOY’S OUSTER
  • CATALAN SEPARATISTS SEEN HIGHLY LIKELY TO VOTE AGAINST RAJOY
  • SPANISH OPPOSITION SEEN CLOSE TO SECURING VOTES TO TOPPLE RAJOY

And 10Y Spanish yields are notably underperforming Italy today…

If Rajoy loses, as now appears almost certain, he will be replaced while Socialist leader Pedro Sánchez has promised to call fresh elections “in a few months” leading to even more political instability.

And while it is likely that PSOE will need the support of many other parties, the market once again has not only Italy to worry about, but also potential instability in Spain, where snap elections now seem unavoidable, and will come 2 years ahead of their scheduled time in July 2020.

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