Spanish yields fall on repo market distortions

LONDON: Yields on Spanish government bonds fell on Friday, with traders saying distortions in the repo market were feeding through to the cash market for the country's debt.

Spanish government bonds have been in short supply in the repo market, where banks commonly use them as collateral to raise funds, since domestic banks parked them at the ECB in return for cash -- particularly the three-year loans.

"There is a big squeeze in the repo market ... so therefore people are scrambling to cover and that is giving a bid to the cash market," a trader said.

Spanish 10-year government bond yields fell 10 basis points on the day to 6.48 percent.

Five-year Spanish yields fell 20 bps on the day to 5.41 percent. Spanish 2-year government bond yield fell 19 bps to 3.74 percent.