LONDON: Spanish bond yields inched up on Thursday as nervous investors continued to trim holdings before a Scottish independence vote on Sept. 18, where a victory for nationalists would fuel demands by Catalonia to break away from Spain.
Yields had eased earlier after a survey showed late on Wednesday that 53 percent of Scots intend to vote against splitting from the United Kingdom. But relief over the poll, which showed 47 percent planning to vote for independence, proved temporary.
Circumstances in Scotland are different from those in Catalonia, where a referendum planned for November is not recognised by the government in Madrid. But investors had been unnerved by the potential fallout were the Scots to secede, driving Spanish bond yields sharply higher this week.
Thousands of people in Catalonia - a region that accounts for 20 percent of Spain's national wealth - were preparing to pack the streets of Barcelona on Thursday to demand a vote on splitting from Spain.
Spanish 10-year yields were up four basis points at 2.31 percent. They had fallen by as much as 7 bps earlier in the day.
"There's a lot going on with the Scottish referendum and Spain has been very sensitive to what's happening in Scotland because of Catalonia, and it remains so," said Alessandro Giansanti, a strategist at ING.
Some analysts said they expected Spanish yields to keep fluctuating until the Scots vote. With a number of unverified polls likely to be released in the run-up to the referendum, sentiment towards Spanish bonds is likely to remain skittish.
"Should Scotland vote to remain part of the union with the rest of the United Kingdom, then nervousness on the markets is likely to dissipate quickly," said Daniel Lenz, a fixed-income strategist at DZ Bank.
"Long positions in bonds from European peripheral countries, Spain in particular, would then be more attractive. If Scotland decides differently, uncertainty is likely to reach new peaks."
Unicredit said it has reduced its overweight position on peripheral bonds like Italy and Spain. At the same time, it was turning less bearish on safe-haven German debt, changing Germany's weighting from -8.5 percent to -5.5 percent.
GREEK EXCHANGE
Italian 10-year yields were also higher at 2.44 percent as the market absorbed 6.96 billion euros of three-, seven- and 15-year bonds auctioned earlier at record low yields for Rome.
Analysts said the European Central Bank's expansionary stance supported demand from investors looking to maximise returns from bonds in the euro zone periphery, which offer higher yields than top-rated euro zone bonds.
"Spreads between peripherals and core bonds are still substantial. Clearly, this still offers some opportunities to grab yield," said Patrick Jacq, a strategist at BNP Paribas.
Focus was also on an offer by Greece to top up its recent three- and five-year bonds by about 1 billion euros and exchange them for outstanding T-bills instead of cash. The exchange offer is part of a liability management programme by Athens aimed at improving the functioning of the secondary bond market, boosting liquidity and tightening spreads, a government official told Reuters last month.
Greek 10-year yields were down 4 bps at 5.61 percent.
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