Spain's 10-Year Bond Yield at All-Time Low

Spanish 10-year bond yields hit a new record low on Monday, outperforming their eurozone peers, on hopes that the resignation of the Socialist party's leader at the weekend would help pave the way for the formation of a new government.

The leader of Spain's Socialists, Pedro Sanchez, resigned on Saturday after losing a vote triggered by a party revolt, a step that could pave the way for the formation of a new government and end a nine-month political deadlock, Reuters reported.

Sanchez had been in a stand-off with acting Prime Minister Mariano Rajoy's People's Party, frustrating efforts to form a government after two elections left the conservatives with the most votes but shy of a majority.

Spain's 10-year bond yield fell almost 2 basis points to record low at 0.866%. In contrast, yields in peripheral peers Italy and Portugal were both 1-2 bps higher on the day.

Spanish yields also outperformed top-rated German Bund yields, which were flat at around minus 0.12%.

"The hope is that we may now see the formation of a government in Spain," said Rabobank fixed income strategist Matthew Cairns. A decision by ratings agency S&P to affirm Spain's BBB+ credit rating with a stable outlook late on Friday also helped to lift sentiment towards Spanish bonds since some banks had highlighted the risk of a downgrade to the outlook.

S&P said the stable outlook reflected a view that momentum in the economy would continue. Spanish manufacturing activity grew in September at the fastest rate since April, a survey showed on Monday, with new orders expanding rapidly and little sign of any impact from the political impasse.

Overall trade in eurozone markets was subdued due to a holiday in Germany, the region's biggest economy.