Spanish Paper Awaits Election Results

Spanish paper presents little in the way of meaningful pre-election jitters, at least intraday, but do lag the rest of the peripheral space at the margin (based on 10-Year benchmarks).

• Spanish 10s have lagged their BTP equivalent during the recent round of tightening vs. Bunds. Some have pointed to political worry ahead of the national vote as a key driver of the relative underperformance vs. BTPs, but we wouldn’t be so sure, given that the move in Portuguese paper is very similar to that seen in Spanish paper over the last 10 or so sessions.
• The same theme holds true in the time since the Spanish regional elections (the 10-Year PGB/Bono Spread is little changed to slightly in Spanish paper’s favour over that horizon).
• Still, the 10-Year BTP/Bono spread has narrowed to Q1/Q222 levels, while the 10-Year PGB/Bono spread operates within touching distance of cycle extremes reached around the time of the local Spanish elections (PGBs trade ~30bp through the Spanish equivalent at typing).
• Several sell-side outlets have outlined a preference for various SPGB/EGB tighteners ahead of the election, with an eye on taking advantage of any pre-election jitters that may creep in to gain exposure to positive Spanish fiscal dynamics.
• Click for our political risk team’s full preview of the Spanish election.

Fig. 1: 10-Year BTP/Bono & PGB/Bono Spreads (%)

Source: MNI - Market News/Bloomberg