Spanish bonds today fell to a one-week low as markets priced in heightened hopes that Catalonia will backtrack on declaring independence from Spain.
Meanwhile, shares on Spain's Ibex index rose more than 0.6 per cent after a larger than expected turnout at Sunday's demonstrations in Barcelona calling for unity.
Pro-independence leader Carles Puigdemont is coming under increasing pressure after a number of Catalan-based companies re-located outside of the region in the wake of an unofficial independence vote just over a week ago.
Puigdemont is set to address the Catalan parliament at 5pm (UK time) on Tuesday to provide an update on "the current political situation".
"Given the negative implications of independence for economic activity in Catalonia due to its likely exclusion from the EU and euro area, we think the likelihood of independence is very low," a note from JP Morgan analysts read today.
Spain's 10-year bonds fell 0.08 per cent to a yield of 1.64 per cent earlier today. The country's debt is now 0.17 per cent lower than the six-month high reached last week.
Equity markets had also been hit, with shares falling to a three-month low when trading commenced on Thursday morning. Share prices have recovered by over 2.5 per cent subsequently.
Head of euro rates strategy Peter Chatwell told Reuters: “It is expected that Puigdemont will on Tuesday say an independence bid in the future will be considered, which is a dramatic step back from expectations last week that a deceleration of independence is imminent.”