Spanish 10-year bond yield hits record low

The yield on Spain's 10-year government bond fell to a record low on Thursday, pushed down by signs of progress to end the country's political deadlock. Spain's acting prime minister Mariano Rajoy said on Thursday he had taken a "decisive step" towards forming a government by agreeing to a pact with a smaller rival, but still lacks the majority he needs for a second term.
The country has been mired in a political limbo since elections in December and June left all parties short of a majority and unable to agree on terms to govern together. Rajoy, whose conservative People's Party came first in both ballots, said he was ready to face a parliamentary vote to form a government. While he still lacks the backing he needs from the second-placed Socialists, progress made so far helped send Spanish bond yields to fresh record lows.
Spain's 10-year government bond yield fell as low as 0.909 percent, according to Reuters data, and was down almost 7 basis points on the day. Eurozone bond yields fell on Thursday as market expectations of a near-term US rate hike receded after minutes of the latest Federal Reserve meeting showed a split among policymakers. German Bund futures rose 46 ticks and euro zone government bond yields were down across the board. Ten-year German Bund yields fell 3 basis points to minus 0.075 percent, a fall mirrored by French and Dutch debt yields.
Portuguese bonds remained the region's underperformer following comments earlier this week by ratings agency DBRS that pressures were building on the country's creditworthiness. The yield on Portugal's 10-year bond was up 2.5 bps at 2.93 percent, but off the day's high of 2.99 percent. The ECB on Thursday published the minutes of its July meeting which revealed that the governing council was in no rush to make changes to monetary policy in the wake of Britain's June vote to leave the European Union.
"I think the focus will turn from the Fed to the ECB in the next few weeks, and what they will do in the September 8 meeting," said Antoine Bouvet, rates strategist at Mizuho International. "People will be looking for clues on what the policy move will be, and if they are going to address the bond scarcity issue." The ECB and other major central banks in developed countries are hoovering up bonds in asset-buying programmes aimed at stimulating inflation and growth.