Polls point to further fragmentation in the political landscape of Spain. A rightwing alliance of Partido Popular / Ciudadanos / Vox currently seems most likely, with little risk for economic and European policies but significant risk of new tensions with Catalonia.
22.02.2019 | 14:48 Uhr
A relative uneventful week for peripheral bond markets. Comments from ECB members Coeuré and Praet on the possibility of upcoming TLTRO’s, and the risk of a possible Italian downgrade by Fitch on Friday were the main drivers for peripheral markets. Italian bonds have returned -0.4 year-to-date, Spanish bonds 1.4%, Portuguese bonds 2.1% and Irish bonds 1.1%.
On Friday evening, after market close, Fitch will review Italy’s credit rating. Currently Italy is rated BBB with a negative outlook by Fitch. A one notch downgrade would bring the country close the non-investment grade. Markets’ focus will be on whether the outlook would be changed to stable in case of a downgrade, in which case the impact on Italian bonds is expected to be limited. Next in line is Moody’s on March 15th, (BBB- with stable outlook) and S&P on April 26th (BBB with negative outlook).
Spanish opposition parties criticized Prime Minister Sanchez' failed attempts to persuade Catalan nationalists to support his budget and prevent elections by suggesting talks about further autonomy. At this stage of the campaign ahead of the elections on 28 April, neither economic policy nor European policies play a role in the campaign. Polls point to further fragmentation in the political landscape. A rightwing alliance of Partido Popular / Ciudadanos / Vox currently seems most likely, with little risk for economic and European policies but significant risk of new tensions with Catalonia.
The accounts of the 24 January ECB Governing Council meeting reveal that ECB members were aiming to “strike a balance between credibility in acknowledging the weaker than expected data and confidence in the adjustment towards the inflation aim”. Members remarked that uncertainty had spread from the external side to the domestic growth and inflation outlook.
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