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Spanish Yields Blow Out Amid Italy Contagion As Italian Banks Scramble For Dollar Funding

Contagion from the recent surge in Italian yields has spread, and is hitting Spanish 10Y yields which over the past 3 days have blown out from 1.65% to as high as 1.82% this morning, before paring some of the move, printing at 1.77% last which is still the highest level since October 2017.

There are also Spain-specific news that have pushed yields wider, to wit yesterday’s ruling by the nation’s Supreme Court they must pay a one-time tax of about 1% on mortgage loans that traditionally was passed to their clients. The report sent Spanish banks tumbling as much as 6.3% at Banco de Sabadell while banking giant BBVA dropped 1.8%, thanks to its larger international business that cushions the impact of the ruling.

The Supreme Court revised an earlier ruling, deciding now that the levy on documenting mortgage loans must be paid by the lenders, and since mortgages are one of the biggest businesses for domestic banks, analysts have been grappling with how big the hit to income would be. As Bloomberg notes, the sentence is one of a string from Spanish and European Union courts in recent years in favor of home buyers and at the expense of banks.

“The decision implies a severe setback for the Spanish financial system and joy for every mortgage-payer, who might get back a significant amount” of money, said Fernando Encinar, head of research at property website Idealista. In the short term, banks will likely raise their mortgage arrangement fees to compensate for their new cost, he said.

The levy is applied to the mortgage guarantee – the loan amount plus possible foreclosure costs – and could be roughly 1,500 euros ($1,728) on a 180,000-euro loan in Madrid, according to Angel Mejias, an attorney at M de Santiago Abogados in the capital.

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