Spanish equities, along with the country-specific exchange traded fund, jumped Thursday as investors anticipate the European Central Bank will make good on its promise to shore up the country’s ailing banking sector.
The iShares MSCI Spain Index (NYSEArca: EWP) rose 5.4% Thursday, but it is still down 17.1% year-to-date. EWP has a 0.52% expense ratio and a 12.1% yield. According to Morningstar, EWP trading volumes spiked to 734,285 shares, compared to the average 367,741, which suggests investors are trading the breakout.
Spain will receive emergency distribution from the $123 billion bailout of its financial system, with the Bankia group about to get the first portion imminently, reports Esteban Duarte for Bloomberg.
“Spain needs the money for Bankia as soon as possible because the uncertainty just makes it expensive for the government to raise money in the bond markets,” Arturo Bris, a professor of finance at the IMD business school, said in the article.
Yields on 10-year Spanish sovereign debt dropped 0.13% to 6.51% during trading, a one month low. It hit an euro-era high of 7.75% on July 25 at the peak of Spain’s banking crisis – the high yields made it costlier for the government to repay its debt. [Spain’s Financial Distress Drags on Stock ETFs]
“The broad-based improvement in Spanish yields comes amid more speculation that the ECB will buy Spanish debt,” Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank, said in a separate Bloomberg article. “This may have served to flush out a few more short positions.”