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% amid uncertainty surrounding a looming 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
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*SPANISH OPPOSITION SEEN CLOSE TO SECURING VOTES TO TOPPLE RAJOY
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*BASQUE NATIONALISTS ARE SAID TO BE READY TO BACK RAJOY’S OUSTER
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*CATALAN SEPARATISTS SEEN HIGHLY LIKELY TO VOTE AGAINST RAJOY
And 10Y Spanish yields are notably underperforming Italy today…
If Rajoy loses, he will be replaced by the PP leader with PSOE’s Pedro Sánchez, who has promised to call fresh elections “in a few months”.
Citi Economics notes that PSOE has 84 seats and will have the backing of Podemos (67 seats) and the Valencia regional party Compromís (4 seats) and would therefore required is 176. That means he’ll need a string of other parties to help out.
Regardless the outcome, instability in Spain will likely remain and lead to snap elections. Regular elections were scheduled for July 2020.
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