The head of Spain’s Catalonia region Friday called for the central government to accelerate plans to share responsibility for regional debt because of increasing difficulties they face to finance themselves, while stressing his region will meet its financial commitments.
“The mechanism used doesn’t matter as long as it provides the treasury with enough money to pay, and pay on time, because we all have bills to pay at the end of the month,” said Artur Mas, one of Spain’s most powerful regional leaders, according to a statement by the Catalonia government.
Mr. Mas made the comments at a news conference earlier Friday and caused Spanish bond prices to drop sharply and German debt yields to fall, as they were interpreted as a sign of further financial stress.
The Catalonia government said in its statement, however, that some of Mr. Mas’s comments had been “taken out of context.” Catalonia “will honor all of its financial commitments,” it said.
“The news seems to have roiled the market, especially Spain,” noted one trader, adding that while Spain had already said that it needed to raise a bond just for the regions, “it’s no good that it is Catalonia, however, as it’s the richest region in Spain.”
Spain’s 10-year benchmark yield rose back to 6.25%, after having traded a shade under 6% earlier in the session, erasing a large chunk of Thursday’s rally, according to data from Tradeweb.
The yield on the French 10-year bond moved back to 2.50% from 2.44% while the Italian 10-year traded at 5.75%, up from Friday’s earlier low around 5.60.
German bond yields also turned and began to go back down toward the record-low yield levels seen earlier this week. The two-year paper was offering just under 0.05 percentage point, the 10-year benchmark was quoted at 1.37%, just above its all-time low.
The Spanish government of Prime Minister Mariano Rajoy has said it won’t allow any Spanish region or municipality to default on its debts. It has provided credit lines they can use to finance debt redemptions and payments to suppliers. And it has said it is preparing a new type of regional debt instrument that carries an explicit Spanish government guarantee.
Spain’s regions have moved to the center of the country’s fiscal crisis. They control almost half of spending, including socially sensitive areas such as health care and education, and have a long history of budget overruns.
They are now grappling with plummeting tax revenue in a weak economy after the collapse of a tax-rich housing boom and have encountered increasing difficulties in obtaining financing from international capital markets, and more recently, even from local banks.