December 22, 2017 / 9:18 AM / 2 months ago

Spanish yields hit one-month high after surprise Catalan separatist victory

* Spanish bond yields rise 5 bps

* Italy and Portugal yields rise 2-3 bps

* Euro dips as separatists win Catalan vote

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Fanny Potkin

LONDON, Dec 22 (Reuters) - Spanish government bond yields briefly hit a one-month high on Friday after Catalan separatists regained power in a regional election, unsettling investors and denting the euro.

Separatist parties won a slim majority in Catalan parliament in the election on Thursday, deepening the nation’s political crisis in a sharp rebuke to Prime Minister Mariano Rajoy and European Union leaders who backed him.

It sets the stage for the return to power of deposed Catalan president Carles Puigdemont who campaigned from self-exile in Brussels and faces arrest if he were to return home.

“This result suggests that the political uncertainty in this region is still a long way from being dispelled anytime soon,” said BBVA strategist Jaime Costero Denche in a note.

Spain’s 10-year borrowing costs rose 5 basis points to a one-month high of 1.52 percent in early trades, before settling back at 1.49 percent.

The premium investors demand for holding Spanish bonds over top-rated German peers widened 6 bps to around 111 bps at one stage.

The euro momentarily dipped to $1.1817 early in the day, before trimming its losses and settling at $1.1857.

Spain’s main stock index fell 1.1 percent at the open and Banco Sabadell and Caixabank, which have the biggest exposure to Catalonia and moved headquarters after October’s independence referendum, sank 2.7 to 3.4 percent, the top fallers.

Core euro zone government bonds opened slightly stronger on Friday, with the yield on Germany’s 10-year government bond, the benchmark for the region, edging marginally lower to 0.41 percent.

Later on Friday, the United States is expected to release data on personal income and durable goods orders for November, data that is closely watched by the Federal Reserve.

The U.S. yield curve flattened on Thursday with 10-year yields falling from a nine-month peak, providing a respite from a sharp three-day bond market selloff tied to a sweeping U.S. tax bill.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Reporting by Fanny Potkin, Additional reporting by Helen Reid; Editing by Alison Williams

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