Spain's bailout program remains on track, concludes the Troika after its 4th review of the country's finances. Importantly, the big drop in sovereign yields has begun to spread out into the banking system and the broad economy. The government's compliance with the conditions of the bailout is nearly complete.
The economy, however, continues to pull a heavy weight on the banking sector. Lending is contracting substantially - a combination of weak demand and banks pulling in their horns. The result is a drag on bank profits even as most of the deterioration in real estate values has already been accounted for in bank provisions.
The Spain ETF (EWP -0.7%) is up 25% Y/Y vs. the S&P 500's 17% gain.