Spanish yields drop on election

Spanish government bonds jumped, pushing the yield down by the most in two years after acting prime minister Mariano Rajoy defied opinion polls to consolidate his position in the country’s general election after Brexit rocked the world’s financial markets last week.

The nation’s 10-year bond yield fell below that of similar-maturity Italian sovereign securities for the first time since July after election results showed the caretaker premier and his People’s Party bolstered their position as the electorate shied away from the anti-establishment party Podemos, which polls wrongly forecast would come in second.

“Investors were expecting a large amount of political instability, so a small improvement from that — with a greater likelihood of a centre-right coalition or even a PP minority government — is enough to cause a rally in Spanish bonds,” said Antoine Bouvet, a London-based rates strategist at Mizuho International.