Spain’s government bonds advanced, ending a three-day decline, after pro-independence parties received less than 50 per cent of the vote in Catalonia’s local elections, reducing for now the prospect of a clash with the central government.

The nation’s 10-year debt outperformed Germany’s bunds, Europe’s benchmark sovereign securities, for the first time in six days.

The election result left Catalan President Artur Mas, who favors breaking away from Spain, needing a deal with an anti-capitalist party which rejects the rule of law if he wants to govern.

Sovereign securities across the euro region were supported before data this week which, economists predict, will show inflation slowed to zero this month. “The market is focusing on the fact that the popular vote wasn’t more than 50 percent,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “But I’m not convinced that the market will stay so sanguine. Sentiment in Catalonia is gradually moving toward independence. There will be ongoing uncertainty.”

Spain’s 10-year bond yield fell nine basis points, or 0.09 percentage point, to 1.94 per cent as of 1:55 p.m. London time, after climbing eight basis points over the previous three days. The 2.15 per cent security due October 2025 rose 0.84, or 8.40 euros per €1,000 face amount, to 101.875. The yield on Germany’s 10-year bund dropped three basis points to 0.62 per cent. That left Spain’s securities yielding 132 basis points more than their north-European peers, down from 139 at the end of last week.

Bloomberg