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Spain to Get Higher Rating

Spanish GDP grew 3.1% in 2017.Spanish GDP grew 3.1% in 2017.

Spanish government bonds outperformed the market on Friday on expectations of an upgrade to its debt rating for the first time since the eurozone debt crisis.

Fitch Ratings is due to review Spain’s sovereign credit rating later on Friday, and analysts expect a strengthening economy and declining political risk will lead it to upgrade the rating from “BBB+” to “A”, Reuters reported.

That would restore the “A” rating for the first time since early 2012, the height of the eurozone debt crisis, when Spain was downgraded by all three of the main ratings agencies.

On Friday, when most eurozone bond yields were pushed higher by a move in US Treasuries, Spain’s 10-year borrowing costs edged lower to 1.48%. That narrowed the gap between Spanish and German 10-year yields to 95 basis points, its tightest since August last year.

“We now consider that there exists a slightly higher probability that Fitch will upgrade Spain by one notch than that it will reaffirm the BBB+ rating,” said BBVA strategist Jaime Costero Denche. “It is only a question of time before all the main rating agencies upgrade their ratings on Spain.” Moody’s rates Spain “Baa2”; S&P Global at “BBB+”.

Spanish gross domestic product grew 3.1% in 2017, making it one of the best-performing economies in Europe, but concern over an independence bid by the region of Catalonia, kept it from being upgraded.

Germany’s 10-year government bond yield, the benchmark for the eurozone, rose 2 basis points to 0.53%, just a basis point below the 5 1/2-month high reached last week. Most other high-grade eurozone bond yields were up 1 to 2 bps.

An improving global economy and expectations of central bank tightening have been pushing up the yields of most major developed country debt. The latest trigger has been faster-than-expected Chinese growth in the fourth quarter of 2017.

“The market seems keen to test the 2.64% level in 10-year US Treasury yields, which has held repeatedly in recent years and is seen by some commentators as the dividing line to a bear market in bonds,” Commerzbank analysts said in a note.

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