Weak eurozone industrial data knocks bloc bond yields further

Spanish market brushes off election threat

LONDON, Feb 13, (RTRS): Eurozone bond yields fell on Wednesday after data showed a larger-than-expected drop in industrial production in the bloc, while the Spanish bond market held firm after parliament voted to reject its 2019 budget.

Further evidence of slowing growth in the euro zone pushed long-term market inflation expectations to new lows, while putting downward pressure on bloc bond yields.

The European Union’s statistics office Eurostat said industrial output in the 19-country currency union fell 0.9 percent month-on-month for a 4.2 percent year-on-year decline.

Germany’s 10-year government bond yield, the benchmark for the region, fell to as low as 0.119 percent, while other core 10-year bond yields were down around one and a half basis points.

The market also lowered its longterm inflation expectations with the five-year, five-year forward touching a new low of 1.4459 percent.

Italian government bond yields fell the most and were down up to six basis points across the curve.

Spanish bond yields were largely unmoved after Spain’s parliament rejected the socialist government’s 2019 budget proposal on Wednesday, Prime Minister Pedro Sanchez’s first major legislative defeat. The rejection raised the chances the government will call a snap general election.

“Let’s assume we go to elections from here. It’s not the worst thing for Spain because, judging by the polls, we will get a working agreement between right-wing parties,” said Lyn Graham-Taylor, fixed income strategist at Rabobank.

“At the moment Spain has no working government and obviously the market doesn’t like uncertainty, but you can see why Spanish yields are largely flat on the day.”

The spread of 10-year Spanish debt over top-rated Germany briefly widened to 111.1 basis points.

Spanish 10-year government bond yields rose around one basis point and were last at 1.25 percent.