The yield on the ten-year Spanish sovereign bond in the secondary market hit a new historic low of 0.024% on Tuesday, below the August 2019 low of 0.035%. While the interest on the equivalent German bond was -0.611%, the risk premium offered to investors by Spanish bonds with respect to the ‘bund’ reference was around 63.77 basis points. The Portuguese bond yield fell into negative territory for the first time, standing at -0.013%.
Bankinter | We maintain the Neutral recommendation. Our valuation for the Spanish stock index points to 10,005 points, which represents a potential of 4.6% as of Dec-20 and an estimated dividend yield for the 4.5% index, the highest among the indexes analyzed.
The Spanish Public Treasury has captured 6 Bn € with a new syndicated 10 year bond, with a demand five times greater, after raising great interest among national and international investors. Spain’s risk premium remains stable around 80 base points.
The Spanish government is facing a motion of censure. In the country’s parliamentary system, if one is presented it requires that an alternative candidate be put forward, who will certainly be the socialist Pedro Sánchez. The debate and the voting will be held on 31 May and 1 June, respectively. Considering the current composition of parliament, Bankinter’s experts provide below the three possible numeric combinations needed for the motion of censure to go through.
Mari Pinardo | Do you remember the summer of 2012, when Spain’s risk premium reached a record high of no less than 638 basis points? Four summers later, this spread seems like it belongs to a completely different country. Since that fateful summer, Spain’s sovereign risk has declined nearly 550 bp and just last week broke the 100 bp threshold. There are basically three reasons which have pushed the risk premium through the 100 bp threshold: a date for Spain’s caretaker Prime Minister Mariano Rajoy’s investiture, the economic policies which have been in place in the Eurozone since April 2015 and the fact that it looks less likely the Fed will raise interest rates in September.
The political risk in Spain is a totum revolutum, where even the analysts cannot agree on what factor carries the most weight: either the Catalan secession process, the appearance on the scene of a political force like Podemos or the possibility that the delicate balance acheived through the timid reforms implemented by Rajoy’s government could be destroyed.
Spanish politics will be under the spotlight this week in Europe. The most likely consequence is that Spain’s risk premium will increase and the Ibex will underperform relative to other European stock exchanges.
MADRID | The Corner | Markets are already discounting the ECB’s QE of sovereign debt. That is why the risk premiums of the European periphery are now at historical low levels –take the Spanish one, for instance, which has dropped to 108 points. The yield of the 10-year bond has fallen to 1.85%. In this context, a sovereign bond purchase program still makes sense. “The latest inflation data of the Eurozone, which are at 0.3%, are a clear indicator of that,” Felipe López-Gálvez, expert at Self Bank, explains. However, the program would not acquire a full meaning until the German economy showed signs of weakness. “If Germany holds on,” then the ECB will not come to that extreme.
MADRID | By Francisco López | It is not the first time economists, analysts and authorities recently talk about a possible bubble in the debt markets. But the latest, strong drops in peripheral bonds, in all-time minimums, have prompted alarms: there is too much euphoria and fixed-income market’s last moves doesn’t make sense.
MADRID | The Corner | Despite the good performance of Western equities, many values are beginning to show signs of vertigo that could lead them to correct some of the gains of the past weeks in the coming days. In addition, the fact that trading volumes are shrinking as indexes advance is a clear sign that there are investors who feel dizzy levels. Therefore, Link experts point out, we shouldn’t rule out some small reductions in the short term even if it’s in an upward trend context.