Spain awaits fresh election

Spain likely to see fresh elections in March as political deadlock in the country continues at the national and regional levels. A three-way coalition support including PSOE to safeguard the economic recovery has been launched by PM Mariano Rajoy. Catalan President Artur Mas stated that if no deal was accomplished to form a government, then new regional elections were to be held on 11 January.

With the ECB buying in the secondary market, fresh supply should not pose a major problem for the first Spanish auction of 2016 due next week. The 10 year yield dropped yesterday to 1.67%, nearly 20bp below the post-election high.

Low EU inflation suggests room for more ECB easing which could aid in moderating selling pressure.