Spanish Markets Sink On Catalan Crisis

Investors are nervous about the ongoing political tensions bubbling in Spain. Over the weekend, the Spanish region of Catalonia voted to leave Spain. Outbreaks of violence ensued between Spain’s national police and Catalan citizens as the Spanish government deemed the vote unconstitutional.

The yield on the 10-year Spanish bond reached its highest point since March. Investors grew increasingly bearish on Spanish assets, dumping long positions on Catalonian bonds and the IBEX 35, the nation’s proxy.

Meanwhile, German bonds – considered a haven in times of heightened uncertainty – rallied with the yield on the 10-year bund adding 3 basis points. (Yields have an inverse relationship with prices)

Concerns amplified after Spanish king, Felipe VI, accused Catalan of tearing apart the ‘’unity of Spain’’ and noted that stability would be threatened by the push for independence. The statement urged investors to pay closer attention and intensified the bearish tones.

The Catalan regional president, Carles Puigdemont, has called for mediation by the European Union, the bloc has refused to intervene, reasoning that the body must respect the constitution of Spain.

In a statement made to the press, the EU noted that: ‘’The commission only has the powers which are given to it and when it comes to this position we have a position which goes back to 2004. It is not an improvised position; it is the result of the competences that we have a position that has been expressed by the President: we must respect the constitutional order and the legal framework of each member state.”

Prior to the political crisis, Spanish bonds have been one of the best-performing in the eurozone bond market.

Europe has overcome many of its political hurdles in 2017, one of the most prominent being the election of Emmanuel Macron as the president of France. Macron’s victory was seen as a rejection of Euroscepticism and a step towards tightening the economic bond between France and the European Union.

Since then, eurozone assets have risen sharply as investors saw political instability falter in the bloc. However, the recent events have provided a fresh bout of anxieties.

The bearish movements should be transitory. Evidence of this can already be seen in the resilience of the euro. The single currency has risen 0.2%, coming off the six-week low it hit following the result of the vote.