Catalonia Said to Court Default in Spanish Game of Chicken

Article by Bloomberg. Published March 17th, 2016.

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Catalonia is deliberately flirting with default on its bank loans as the region’s separatist government tries to force the Spanish state to deliver aid payments, according to two people familiar with the situation.

Officials in the regional capital Barcelona are counting on Spain to step in and supply the funds they need to meet loan repayments coming due this year, betting the central government will be forced to back down because the costs of a default would be greater for the Spanish sovereign, the people said, asking not to be identified discussing confidential matters. The region already missed payments on at least two bank loans, Regional President Carles Puigdemont said earlier this month according to El Mundo newspaper.

Albert Puig, a spokesman for the Catalan government, said the region is trying to persuade Spain to release aid money due from 2014. He said Wednesday there’s “no scenario” in which Catalonia would default.

Catalan bonds maturing in February 2020 plunged the most since June 2013 on Wednesday after El Mundo reported that the region could be placed on selective default by credit rating company Standard & Poor’s. The yield on the debt rose by 21 basis points to 4.18 percent on Thursday after jumping by 84 basis points during the previous session. Similarly dated Spanish debt yields 0.36 percent.

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