Spain: Political chaos persists - Rabobank

Analysts at Rabobank point out that the European Union called on Spain to avoid a further escalation and use of force but stopped short of condemning the Spanish governments’ response altogether as it sees the referendum held on Sunday as an internal matter and incompatible with the Spanish constitution.

Key Quotes

“Meanwhile, the FT reports today that the Catalan government has asked the EU to mediate between them and the Spanish government to “prevent a traumatic split”, whilst there were signs that it may hold back its decision to declare independence. This suggests that the Catalan leadership may seek to extract more autonomy and freedom rather than take the more risky route down to independence – the outcome we highlighted as the most likely in a recent research note by our Spain analyst Maartje Wijffelaars. But obviously the situation remains totally fluid at this stage.”

“Spanish bonds clearly underperformed yesterday with the 10y yield jumping 9 basis points as its German counterparts actually lost one basis point. Some spillover effects were seen in the case of Italy (+5bp), but the broader impact on markets from the Catalan referendum was arguably limited.”