Spanish Stocks Slump To Six Month Low as Catalan Crisis Deepens

Madrid (Oct 4)  Spanish stocks slumped to a six month low Wednesday and government bond yields rose sharply as investors retreated from Europe's fifth largest economy amid an escalating constitutional crisis following last weekend's disputed referendum in Catalonia.

Spain's IBEX index of the country's 35 biggest stocks was marked 2.43% lower by mid-day in Madrid, the biggest single-session decline in more than a year and extending a third session of declines and taking the benchmark below the 10,000 mark for the first time since March 15.

At the same time, the extra yield, or spread, that investors demand to hold Spanish governments bonds instead of triple-A rated German bunds rose to 1.35%, the widest in at least five months. The spread between Catalonia-issued bonds maturing in 2020 and similar notes issued by the federal government widened to 2.58%, the most in at least a year.

The market moves followed a rare interjection into Spanish politics late Tuesday by King Felipe VI, who told a televised audience that Catalan separatists showed "unacceptable disloyalty toward the power of the state" and accused its leaders of fracturing the region's society by "repeatedly, consciously and purposefully breached the constitution."

The rebuke sets up the potential for a deepening crisis in Spain over the coming days, with Catalan President Charles Puigdemont vowing to issue a unilateral declaration of independence in the coming days that could force Prime Minister Mariano Rajoy into invoking a little-used power in the country's constitution to remove administration powers from the government in Barcelona.

TheStreet