September 4, 2018 / 11:20 AM / 8 months ago

UPDATE 1-Catalan bond yields fall on reports Spanish PM to offer autonomy vote

(Adds background, investor quote, detail on Spanish stocks)

By Abhinav Ramnarayan

LONDON, Sept 4 (Reuters) - Catalonian bond yields fell across the curve on Tuesday after Spanish Prime Minister Pedro Sanchez has proposed a referendum on greater autonomy for Catalonia, although he ruled out an independence vote for the region.

Sanchez said on Monday there should be a new accord between the Spanish and Catalan authorities to give more power to the region, he told Spain's Cadena SER radio.

"At the end [of negotiations] there has to be a vote on whether to strengthen the self-government of Catalonia; a referendum on self-government," he said.

Catalonian regional bonds maturing in February 2020 , the largest bond the region has outstanding, hit an all-time low yield of 1.058 percent on Tuesday.

It fell as much as 76 basis points from Monday's close.

Analysts say that Catalonia's bond market is illiquid and therefore highly volatile, particularly at the shorter end of the curve.

Still, other Catalonian bond yields were also lower on the day. A May 2030 bond yield, for example, was down 4 bps at 3.94 percent and the yield on an October 2034 note was lower 3 bps at 4.29 percent.

"We have had a consistent view on Catalonia, that the end game is autonomy rather than independence, and that the debt looks cheap relative to Spanish government bonds," said Mark Dowding, a partner and head of developed markets at Bluebay Asset Management, a London-based fund that owns Catalonian debt.

"We think the secession risk is over-estimated - we continue to hold the debt."

Sabadell and Caixabank, which have the biggest exposure among top Spanish banks to private sector loans in Catalonia, were trading up 0.4 percent and up 3.6 percent respectively on the day, comfortably outperforming the Spanish IBEX index, which was was lower on the day.

Caixa was also benefiting from a broker upgrade.

Both banks moved their legal bases from Catalonia to other parts of Spain last year after the region held a vote on independence on October 1 that was not recognised by the Spanish state. Since then Caixa shares have lost 5.3 percent while Sabadell is down nearly 24 percent.

Spanish stocks, government debt and Catalonian regional debt were all hit late last year on the possibility that the wealthy region would bid for independence from the rest of the country.

But they recovered soon after as overseas holders of Spanish stocks and bonds were quick to dismiss comparisons with a succession of rolling sovereign debt crises that hit the euro zone between 2010 and 2012. (Reporting by Abhinav Ramnarayan; Additional reporting by Danilo Masoni, Editing by Dhara Ranasinghe and Angus MacSwan)

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