Spanish yields fall as market shrugs off Catalonia's symbolic vote

LONDON: Spanish bond yields dipped on Monday as investors shrugged off a symbolic vote on independence in the country's wealthy Catalonia region.

Market sentiment in the rest of Europe was also broadly positive on Monday on bets that flash euro zone data this week would support the case for the European Central Bank to expand its asset purchases to government bonds.

Millions of Catalans voted in Sunday's ballot, which supporters hope will propel the issue further despite opposition from Madrid. The "consultation of citizens" in the northeastern region of Spain follows a legal block by Madrid against a more formal, albeit non-binding vote.

Spanish bonds had underperformed most euro zone bonds last week in the run-up to Sunday's ballot amid some uneasiness that a big turnout could stoke tensions between Madrid and a region which accounts for one fifth of the country's economic output.

Spanish 10-year yields fell 2 basis points to 2.14 percent, trading in line with Italian equivalents.

"What happened in Catalonia was not completely legal, which means that whatever the result of the vote is, it will not have an impact on the institutions," said Patrick Jacq, an interest rate strategist at BNP Paribas.

Commerzbank strategists said that, while initial market reaction to the Catalan vote should be muted, there was still a risk investors might turn nervous in coming weeks as attention turns to a general election in Spain due next year where a new, increasingly popular leftist party Podemos ("We Can") could unsettle the established parties.

Early regional elections also look likely and the Catalan governing parties could turn Sunday's vote into a measure of support for independence, other analysts said.

"Spanish government bonds have not felt much pressure due to the issue so far, but increased tensions between Catalonia and the central government continue to have potential to cause losses for Spanish bonds," Nordea strategists said in a note.

Among top-rated debt, German 10-year yields, the benchmark for euro zone borrowing costs, were 1 bp lower at 0.82 percent, subdued by the ECB's affirmation last week that it could ease policy further if the economy deteriorates.

Third quarter euro zone growth numbers due on Friday is seen at just 0.1 percent with the year-on-year figure little better at 0.7 percent.