Italy

Italy came to the market for its first syndication since a seismic rally in the sovereign’s bonds after Mario Draghi agreed to form a new government earlier this month. But despite the huge confidence from investors in BTPs, a compression of 4bp from initial price thoughts for a new 10 year led to a dramatic loss of over €45bn orders.

Italy hit screens on Monday to announce a dual-tranche syndicated deal comprising a new 10 year benchmark and 30 year inflation-linked bond.

Banca Monte dei Paschi di Siena said there were some “uncertainties” around its capital strengthening plans as it slumped to a €1.7bn annual loss on Wednesday. The Italian lender has recently denied rumours that it is working on an imminent sale of subordinated debt.

Italian prime minister-designate Mario Draghi must walk a knife-edge if he is to form a government and present a national recovery and resilience plan. If he takes too hard a line the mill of Italian politics will chew him up and spit him out. If he is too quick to compromise, the EU’s life as a giant bond issuer may be shorter than hoped.

Relief swept through secondary bond markets when Mario Draghi agreed to form a new government to steer Italy through the pandemic. But he must tread a narrow and treacherous path if he is to succeed and primary capital markets are to feel any lasting benefits. As Lewis McLellan and Tyler Davies report, next week will show whether Thursday’s burst of optimism was justified.

If he can form a government that holds the demons of Italian politics at bay long enough to drag his country through the coronavirus pandemic, then Mario Draghi will have earned his laurels. But in Rome, glory has always been fleeting.

The possibility that former ECB chief Mario Draghi may become the next Italian prime minister has caused excitement among bond market participants and a sharp rally in risky assets.

UniCredit’s decision to align the definition of a defaulted receivable mortgage loan with the issuer's internal classification will have a negligible impact on the quality of the cover pool, said Moody’s.

The European Central Bank meeting on January 21 did not strike a pleasing note for investors in eurozone government bonds, and spreads are still wider. But primary market participants seem unconcerned.

European Central Bank president Christine Lagarde refused to be drawn into naming a specific spread target that the central bank will defend in a press conference on Thursday but investors may find out for themselves in the wake of the meeting. BTPs sold off sharply after Lagarde spoke, perhaps indicating that the central bank has not done enough to convince investors of its support.

Italian prime minister Giuseppe Conte won a vote of confidence in the country's senate last night, removing the immediate threat of the government he leads collapsing. Relieved investors flocked back to Italian assets in the aftermath but Italy’s political troubles are unlikely to be over.

Banca Monte dei Paschi di Siena has published a new business plan for the next four years, targeting a return to profit in 2022. The plan relies on the bank receiving a capital injection of at least €2bn, which is still under discussion with authorities in Italy and the EU.