Spain's IBEX 35 Index may have been a laggard last year with a drop of 6 percent but since the announcement of the European Central Bank's (ECB) bond-buying plan investors have returned to the country and the index has climbed 14 percent.
Analysts have declared that "the worst may be over" and a bailout is "off the cards" but Nicholas Spiro, managing director at Spiro Sovereign Strategy, told CNBC that significant "idiosyncratic" risks are being suppressed and warns of future flare ups.
The Spanish treasury completed another successful bond auction on Thursday with the improved sentiment allowing it to reach around 9 percent of its longer term borrowing needs for the year.
Yields on 10-year benchmark bonds even managed to creep below the 5 percent level last week for the first time since February 2012, well below the 7-plus percent seen in July.
In September, the European Central Bank's chief Mario Draghi announced the Outright Monetary Transactions (OMT) program to buy the sovereign bonds of stricken euro zone members if they applied for aid. It might be the cheapest program he's ever introduced, as investor sentiment has returned without the need to even pull the trigger.
"We no longer think that Spain will ask for a program. The threat of OMT activation may be just enough to deter investors from taking short Spain positions of the size that occurred in [the first half of 2102]," Barclays said in a research note on Friday.
"Financial conditions have relaxed for the sovereign and will undoubtedly ease the public and private sector adjustment. Should these tailwinds continue, they could eventually ignite a virtuous circle."
(Read More: Draghi: ECB Bond Program Has Already Eased Tension)
The equity research team at Exane BNP Paribas were equally optimistic despite potential risks. At an investor feedback day held by the firm, a survey of delegates present found that over 70 percent felt IBEX would rise by at least 10 percent this year, in line with Exane BNP's estimates.
"Our own top picks in Spain include strong international franchises such as Inditex and Amadeus, as well as companies that are positioned to take market share in a very tough consumer environment such as [supermarket chain] Dia," the bank said in a research note.
But it's the lower interest costs that are the main fear Nick Spiro is worried about. Spanish bonds aren't currently trading on the economic fundamentals, according to him, which raises the stakes and increases the scope for a "sharp correction".
"The calming effects of the ECB's bond-buying program are suppressing the significant idiosyncratic risks in Spain centered around public finances and the banking sector," he said in a research note.
So, are traders wary of a potential sudden spike in treasury yields as they pile into the Spanish stock market? Ishaq Siddiqi, market strategist at ETX Capital says his team are treading carefully.
"We would caution turning bullish on Spanish stocks during the first half of this year given there are still plenty of hurdles and unknowns in the way before investors should switch the bullish signals on," he told CNBC.com
Siddiqi cites Italian elections and the looming U.S. budget battle as key risks. The Spanish market regulator is also lifting a ban on short selling at the end of the month and Siddiqi expects "downside pressure" when this ends.
"Although a bailout is off the cards given the successful auctions we have seen since the start of the year, the ECB's OMT acting as a strong backstop, the near-term outlook for Spain remains murky at best," he said.
—By CNBC's Matt Clinch