LONDON: Spanish bond yields rose sharply for a third consecutive day on Wednesday as investors worried that the push for independence in Scotland might encourage a similar move in Catalonia, with potentially dire consequences for Madrid.
Traders cited an unverified online poll conducted by an independent blogger that gave the "Yes" camp 53.9 percent support before the Sept. 18 referendum. http://barker.co.uk/scotlandpoll
Previous surveys from recognised polling institutes showed the pro-independence voters running neck-and-neck with those who want the country to remain within the United Kingdom.
Spain's wealthy Catalonia region is planning a vote of its own in November, with the regional parliament expected to pass a law calling the referendum later this month. Madrid is expected to challenge that move in the constitutional court.
Artur Mas, the leader of the northeastern region of 7 million people, told Reuters in an interview he is seeking a legal formula for a non-binding vote, although Prime Minister Mariano Rajoy has said any format is illegal.
Although the circumstances are different from those in Scotland, where the referendum is recognised by the British government, investors are still seeking a higher risk premium due to the uncertainty over the vote in Catalonia.
They fear the Madrid government would struggle to mitigate the impact of losing the region, which accounts for 20 percent of Spain's national wealth.
"Catalonia is much more important to Spain than Scotland is to the UK. It is much bigger and it is a net contributor to Spain, while Scotland is the other way around," said Sandra Holdsworth, investment manager at Kames Capital.
"The damage to the remaining Spanish sovereign would be more serious," said Holdsworth, who has sold Spanish bonds recently.
Spanish 10-year bond yields rose 10 basis points to 2.30 percent, having hit a record low just above 2 percent last week.
They extended their underperformance of euro zone peers with this week's jump in yields the biggest since mid-June 2013. Another day of similar losses would make it the worst week since the height of the euro zone debt crisis in 2012. With Catalonia marking its national day on Thursday, the bonds are seen remaining under pressure near-term.
"Tactically, it would therefore be wise to avoid Spanish sovereign bonds in view of forthcoming event risks. Once the Scots have gone to the polls, it will then be time to think about a new positioning," said Christian Lenk, a strategist at DZ Bank.
Seventy-four percent of Catalans want a referendum on independence according to a Feedback poll for La Vanguardia newspaper in May. The poll showed 43 percent want independence, 43 percent are opposed and the rest undecided.
BUND AUCTION
Other euro zone yields were also higher, although not by as much. Ten-year Bund yields rose 2 basis points to a day's high of 1.02 percent before retreating slightly, with the market still concerned that US interest rate hikes may come sooner than expected.
A study by the San Francisco Federal Reserve released this week showed investors underestimated the speed at which the US central bank may hike interest rates.
But the European Central Bank's loose monetary policy and the bleak outlook for growth and inflation in the euro zone has tempered the selling pressure. A sale of new 10-year Bunds found stronger demand than an auction last month.
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