###POV. The Spanish central government is.....>

SPAIN: ###POV. The Spanish central government is doing its best to thwart the

Catalan independence referendum scheduled for this Sunday 1 October, which it

says is illegal. The central government authorities have confiscated ballot

papers and arrested pro-independence protesters in an attempt to prevent the

referendum from taking place.

- It is difficult to isolate the impact of the 1-O referendum upon Spanish debt.

Catalonia bonds have underperformed Spanish Bonos. However Bonos have shown

little volatility lately. One way to check is to estimate Spanish spreads as a

combination of Bund-OAT & Bund-BTP spreads. When doing this, we find exceptional

Spanish debt underperformance in August as 1-O chatter gathered pace but this

also reversed a very strong month of July for Bonos. In September, Spanish debt

has traded in line with other EGB performances. As such it is difficult to claim

that there is a large Catalonia independence spread premium in the Spanish debt

market.

- Although, the independence referendum has been a cause of concern, observers

believe that the likelihood of an independent Catalonia is minimal.