Spanish bond yields hit three-months high after PM Rajoy lost confidence vote

The Spanish government bonds yields touched three months high Thursday after the Prime Minister Mariano Rajoy lost a confidence vote late on Wednesday. This has increased the possibilities of a third election in 2016. The 10-year Spanish/German spread widening by 4 basis points yesterday to a 3-week-high of 108 basis points.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 3 basis points to 1.045 percent, the yield on long-term 30-year note bounced 5 basis points to 2.132 percent and the yield on short-term 2-year bond climbed 1/2 basis point to -0.164 percent by 09:00 GMT.

Spain’s acting prime minister lost a vote of confidence in the parliament for a second term late on Wednesday, failing, as expected to secure the votes of the main opposition Socialist Party (as well as those from the leftist Podemos and smaller regional parties).

The centre-right leader and acting premier received 170 of 176 votes necessary for a parliamentary majority. There will be another vote on Friday, but a lack of success could mean after another 2-month period of trying to form a government, a third set of elections to resolve the country's political impasse since December.

Lastly, investors will remain keen to focus on the next week's ECB meeting, when there is a chance of another small deposit rate cut.

Meanwhile, the Spain stock index (IBEX 35) traded 1.45 percent higher at 8,843.50 by 09:30 GMT.