Once thought to be the “next shoe to drop” among the PIIGS nations, Spain has seen its equity market stage a remarkable recovery over the past two and a half years, providing a lift to several well-known, U.S.-listed exchange traded funds.

“Highlighting the recovery in the performance of Spanish stocks compositely is the fact that the IBEX 35 reached its nadir on precisely the same date (24 July 2012) when ten-year Spanish government bond yields climaxed at 7.6 percent. Although domestic politics could play havoc with the shares market in the run-up to elections later this year, economic projections favor an upgrade of Spanish shares to market-neutrality,” said S&P Capital IQ in a new research note.

Although yields on Spanish 10-years rose 7.06% Monday, that jump took Spain’s benchmark bond yield to just 1.35%, or about 70 basis points below where the comparable U.S. government bonds reside.

Improvements in the Eurozone’s fourth-largest economy have helped ETF such as the iShares MSCI Spain Capped ETF (NYSEArca: EWP), the largest dedicated Spain ETF. Government borrowing costs have been declining to record lows across the Eurozone after the European Central Bank enacted its own version of quantitative easing and Spain’s financial sector is appearing stronger. That is good news for EWP, an ETF that allocates 45.4% of its weight to the financial services sector, or more than triple its second-largest sector weight, utilities. [Spain ETF Rises From the Ashes]

“Record-low borrowing costs and intensifying private-sector demand will proceed to induce businesses to expand capital spending in addition to augmenting their payrolls in view of the abundance of low-cost labor with unemployment hovering around the 24 percent level. Higher employment should elevate real personal disposable income and reinforce the revival by engendering increased consumption by households. Further, as the euro stabilizes at its lowest point in almost twelve years, the competitiveness of Spanish exports will continue to improve as evident in the steady upturn of the nation’s terms of trade – enhancing the country’s economic prospects over the next twenty-two months,” according to S&P Capital IQ.

Although EWP has offered only middling performance relative to other single-country PIIGS ETFs in recent months, the fund is starting to perk up. Over the past month, EWP is higher by nearly 4%. A newer rival is also asserting itself.

The SPDR MSCI Spain Quality Mix ETF (NYSEArca: QESP), which is nine months old, is higher by more than 5% over the past month.The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI.

QESP is also heavily exposed to the financial services sector with a weight of 33.5% to that group. The factor-based Spain ETF also offers some leverage to the recovering Spanish consumer with over 10% of its weight going to consumer sectors. [Quality Approach to Country ETFs]

Although Spanish stocks appear somewhat richly valued, further evaluation turns up some encouraging signs.