Catalonia Cries Freedom from Spain Not So Fast Says Bonds of Mr. Market

Catalan President Carles Puigdemont says he’s willing to go to jail in the fight to achieve independence from the rest of Spain. His region’s creditors are unconvinced he’ll succeed.

Catalonia’s regional assembly on Wednesday voted to hold a referendum on Oct. 1. Spanish Prime Minister Mariano Rajoy, who says the vote is illegal, says he may prosecute separatist leaders, and will ask the Constitutional Court to invalidate the plebiscite.

Secession would almost certainly mean Catalonia taking on some of Spain’s 1.2 trillion euros ($1.4 trillion) of debt, adding to the 6 billion euros it already owes its lenders. But while the yield spread between the region’s benchmark bond and Spanish government debt has risen in recent weeks, it remains well below the levels seen even at the start of last year.

The relaxed stance of investors reflects waning appetite among the region’s voters for going it alone. As this chart compiled by my Bloomberg colleague Ben Sills shows, support peaked at almost 50 percent between the end of 2013 and the third quarter of 2014, when Scottish independence fever was raging. It’s recently dropped below 35 percent.

A rising economic tide is helping to sink the separatists’ boat. Catalonia produces almost a fifth of Spain’s gross domestic product, and is one of the country’s wealthier regions. The jobless rate peaked at 24 percent at the start of 2013; it’s down to just 13 percent now, below the 17 percent rate for the country as a whole

Catalan’s defiance means Spain faces a constitutional crisis. The yield on 10-year Spanish government debt, however, has barely moved in the wake of the move. Whatever the merits of Catalonia’s bid for secession, the market reaction — or lack thereof — suggests investors don’t expect it to achieve freedom.

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This column does not necessarily reflect the opinion of Bloomberg LP and its owners.