Little evidence of contagion from Greece to Spain

One of the most important aspects of the ongoing Greek crisis has been the lack of meaningful contagion to Spain and other EA economies. The presence of the radical left party Podemos could have been a channel of crisis contagion to Spain, but all activity indicators continued to strengthen in Q2. 

Sovereign spreads did widen by more than 50bp as the Greek government called for a referendum, however, Bund yields tightened and the Treasury's overall funding costs remained at historically low levels. 

Some pricing of political risks had emerged in the relative spread of Spain vs Italy, which in the past year had favoured Spain, consistent with a stronger macroeconomic outlook, but more recently the two countries' bond yields have tracked each other very closely.

"Election risk is likely to remain a factor for investors through H2 15", says Barclays. First, most polls show a drop in support for Podemos over the past six months. The regional and municipal elections in May 2015 placed Podemos as the third most voted-for party.