S&P on Friday lifted Spain's credit rating to A from A-, citing economic resilience and an improving budgetary position. It changed the country's rating outlook to stable from positive.
Rival ratings agency DBRS also changed the outlook on Spain's rating to positive from stable, which suggests the next move could be an upgrade. It rates Spain at A.
In early trade, Spain's 10-year bond yield fell 2.5 basis points to 0.216%, its lowest in over a week. It outperformed Italian and Portuguese peers.
The 10-year bond yield spread over top-rated Germany was at around 73 basis points. The gap has narrowed more than 40 bps this year as weak economic growth and expectations for monetary stimulus pushed bond yields across the single currency bloc sharply lower.
Jim McCormick, global head of desk strategy at NatWest Markets, said Spain's average ratings score is now the highest in seven years.
"Spain's fundamentals already look more semi-core than peripheral," he said. "Importantly, this is slowly bringing Japanese investors into the market in bigger size."
Japanese investors bought a net 33.8 billion yen of Spanish bonds in July according to data from Japan's Ministry of Finance.
Analysts said the positive ratings news for Spain could help offset political uncertainty ahead of snap elections in November.
Spain's Socialist party would win a November election and gain more seats, two polls showed on Sunday, but it would fall short of a majority and will still need support from other parties to form a government.
Elsewhere, most 10-year euro zone bond yields were a touch lower on the day ahead of the "flash" or first reading of business activity surveys in the region for September.
European Central Bank chief Draghi speaks to the European Parliament later in the day.
Earlier this month, the ECB unleashed a fresh wave of stimulus measures including rate cuts and asset purchases to boost economic growth and inflation.
But Draghi's stress on the need for governments to do more through fiscal policy to lift growth has fuelled concern that the ECB has limited room for further monetary policy action.