Little SPGB Widening Pressure Ahead Of Sanchez’s Announcement

Little in the way of widening pressure for SPGBs ahead of Spanish PM Sanchez’s announcement surrounding his potential resignation (due 11:00 local/10:00 London).

• The lack of meaningful SPGB underperformance can be identified in the tight range seen in the 10-Year PGB/SPGB spread in the time since the news of Sanchez's potential resignation (the spread is only a couple of bp tighter over the last few sessions).
• Back on Thursday of last week we highlighted a few potential explainers for the lack of SPGB widening pressure after news of the impending decision broke:
• Sanchez’s already marginalised political position.
• The market may not believe that he is likely to step down, with confirmation of his departure required to generate a widening impulse for SPGBs. Subsequent government formation may prove tricky under another leader given the fractured nature of Spanish politics.
• A continued focus on impending ECB easing.
• Our political risk team has provided further colour on the Spanish political situation here.

Fig.1: 10-Year PGB/SPGB Spread (bp)

Source: MNI - Market News/Bloomberg