Ignore politics and buy the dip in Spain's Bonos
TLT•Morgan Stanley said Spain remains attractive in euro area fixed income and would view Spain-specific cheapening in government bonds as an opportunity to add exposure. The yield gap over German Bunds stood at 62.50 basis points, up from 61 basis points before Prime Minister Pedro Sanchez called an early election for Nov. 29.
1. Morgan Stanley’s view
Morgan Stanley said political uncertainty is unlikely to change Spain’s image of stability and sees scope for further positive rating developments in 2027. It said it would view any Spain-specific cheapening in government bonds as an opportunity to add exposure.
2. Bond spread and issuance
The yield gap between Spanish bonds and safe-haven German Bunds was 62.50 basis points, compared with 61 basis points late Friday before Sanchez’s election announcement. Morgan Stanley expects gross issuance to rise in 2027 but net issuance to remain broadly stable, with non-euro-area investors and banks continuing to absorb Spanish government bond supply.
