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Spain's Prime Minister Mariano Rajoy attends a session of Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
Spain’s Prime Minister Mariano Rajoy attends a session of Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez

Spain’s stocks and government bonds were in demand on Wednesday after Catalonia’s leader stopped short of making a formal declaration of independence, taking the edge off a political crisis in the euro zone’s fourth biggest economy.

Carles Puigdemont instead made only a symbolic declaration late on Tuesday, claiming a mandate to launch secession but suspending formal steps to that end.

“There was a chance Puigdemont would have made a decisive declaration, so now yields are dropping because there is room for negotiation left,” said DZ Bank strategist Christian Lenk.

“Now the haggling continues and the ball is in the hands of Madrid.”

Spanish Prime Minister Mariano Rajoy on Wednesday, however, took the first step towards activating article 155 of the Spanish constitution, a so-called nuclear option that would allow him to suspend Catalonia’s political autonomy and take over the region.

The Spanish government has now given Catalan leader Carles Puigdemont five days to say whether he declared independence or not, Spanish news agency Efe said on Wednesday.



A new pro Catalan independence mural on Belfast's Falls road. Niall Carson /PA Wire

A new pro Catalan independence mural on Belfast’s Falls road. Niall Carson /PA Wire
A man checks his phone outside The Centre of Contemporary Culture of Barcelona, in Barcelona, Spain October 11, 2017. REUTERS/Susana Vera
A banner that reads “Democracy” hangs outside The Centre of Contemporary Culture of Barcelona, in Barcelona, Spain October 11, 2017. REUTERS/Susana Vera
A Catalan separatist flag hangs from a balcony as a man smokes in Barcelona, Spain October 11, 2017. REUTERS/Susana Vera
A towel with the word Champions (in reference to Barcelona soccer club) hangs from a balcony in Barcelona, Spain October 11, 2017. REUTERS/Susana Vera
A new pro Catalan independence mural on Belfast’s Falls road. Niall Carson /PA Wire
Spain’s Prime Minister Mariano Rajoy receives applause from members of his People’s Party (PP) after his speech to Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
A Catalan separatist flag hangs from a balcony in Barcelona, Spain October 11, 2017. REUTERS/Susana Vera
Spain’s Prime Minister Mariano Rajoy receives applause from members of his People’s Party (PP) after his speech to Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
Spain’s Prime Minister Mariano Rajoy attends a session of Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
Spain’s Prime Minister Mariano Rajoy receives applause from members of his People’s Party (PP) after his speech to Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
Spain’s Prime Minister Mariano Rajoy addresses the Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
Spain’s Prime Minister Mariano Rajoy arrives at the Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
Spain’s Prime Minister Mariano Rajoy arrives at the Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez
Spain’s Prime Minister Mariano Rajoy arrives at the Parliament in Madrid, Spain, October 11, 2017. REUTERS/Sergio Perez

If Puigdemont was to confirm he did declare independence, he would be given an additional three days to rectify.

Failing this, Article 155 of the constitution, which allows the central government to suspend a region’s political autonomy and rule it directly, would be triggered.

Spain’s benchmark IBEX closed 1.3 percent higher, outperforming the pan-European STOXX 600 index, which was unchanged on the day.

Shares in Spanish banks Sabadell and CaixaBank , which have moved their legal bases from Catalonia to other parts of Spain since an Oct. 1 independence referendum, rose 1.2 percent and 0.3 percent respectively.

The rally in Spanish stocks pushed the main global stocks index, MSCI’s 47-country All-Country World Index , to a fresh record high of 493.63 points.

Spain’s 10-year government bond yield – which moves inversely to the price – dropped 6 basis points to 1.64 percent, according to Tradeweb data.

The gap between Spanish and German 10-year government bond yields narrowed to 117 bps . It had widened to 136 bps last week.

Spanish government bond yields had risen sharply over the past week and a half after Catalans voted overwhelmingly, albeit on a low turnout of 43 percent, for independence in the referendum banned by authorities in Madrid.

While the Spanish government does not recognise the referendum or Catalonia’s right to break away, Foreign Minister Alfonso Dastis said early on Wednesday that there was room for talks within the framework of Spain’s existing constitution.

Though Spain was the outperformer on the day, other Southern European government debt was also in demand: Italian and Portuguese 10-year yields dropped 3 and 7 bps, respectively.

Portugal’s 10-year bond yield hit its lowest level since December 2015 after strong auction results.

Higher-rated European government bond yields rose against a backdrop of strong supply, with Germany’s 10-year government bond yield 3 bps higher at 0.47 percent.

Germany sold 2.395 billion euros of five-year bonds and the Netherlands was set to sell 5-7 billion euros of seven-year bonds.

Online Editors



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