LONDON: Euro zone bond yields hovered on Monday near lows hit last week, with Spain in focus after the wealthy region of Catalonia was downgraded.
Standard & Poor's cut Catalonia's credit rating to B+ on Friday, pushing it further into junk territory after a previous downgrade in October. The rating agency cited weakening financial management and maintained a negative outlook on the region where a drive towards independence from Spain has grown.
S&P's move reflects persistent worries about the financial health of Spain's regions and raises concerns about the sovereign's own ratings outlook, analysts said.
"Catalonia's downgrade within already 'junk' territory and the outlook still being negative highlights that the situation gets worse with time passing," said Commerzbank rates strategist David Schnautz.
"The downgrade of Catalonia is a very bad omen for S&P's upcoming review of Spain on April 1."
S&P rates Spain BBB+, with a stable outlook.
Spain's acting government aims to enforce stricter controls over regional finances as it seeks to convince Brussels it can keep the country's budget deficit in check, Economy Minister Luis de Guindos said in an interview published on Sunday.
Spain's 10-year bond yield was at 1.44 percent, little changed on the day, but up 4 basis points from a one-week low hit on Friday.
The yield on five-year Catalan bonds, the most liquid segment of the Catalan curve, traded at about 4.06 percent compared with 3.91 percent on Friday, according to Reuters data.
Most euro zone bond yields were a touch lower, with markets in the region continuing to draw support from ECB monetary stimulus.
Italy's 10-year bond yield was at 1.27 percent, holding near a one-year low hit on Friday at 1.24 percent.
"Apart from Spain, the bond market is sort of looking for direction," ING's senior rates strategist Martin Van Vliet said.
"Tomorrow is a big day in terms of macro data with both flash PMIs and German IFO due."
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