The outcome: The ruling Socialist Party of Pedro Sánchez came first, however without an absolute majority in Parliament. The new, far-right, VOX party also entered Parliament.

The next stepwill be the search for a majority coalition. The design of the next “Coalition in power” is not an easy task for two main reasons: the harsh words exchanged between contenders during the Parliamentary campaign and the next regional elections, that will take place the same day as the EU elections (May 26th). The negotiation process could take some time.

Risk assessment: No imminent threat to economic stability, considering the strong economic improvement already achieved by the country. Fiscal discipline should be monitored, especially in the case of a coalition or alliance with the far-left.

Long term risks, similar to the rest of Europe, relate to the emergence of more extreme political forces. However, we do not see the Spanish election as a game changer for the European elections, although they may give even more impetus to those anti-institutional forces that make subsequent national elections less predictible.

Bond Market assessment: In Spain, Government Bonds remain supported by the good momentum of the economy and their risk adjusted return is still fair, in comparison with other peripheral bonds (Portugal relatively rich, Italy more volatile). Spanish IG credit also relatively attractive (hunt for yields is set to continue).