Italy

Banca Carige has challenged a downgrade from Fitch, after the rating agency discussed the potential failure of the bank. The hard-pressed Italian lender also indicated that it had spoken to the European Central Bank about a merger.

The Milan listing of Piovan, the sole Italian IPO still seeking to be priced this year, is still going strong in the bookbuilding phase despite investors elsewhere fleeing Italian risk.

Investors in speculative grade debt are joining the discussion about the potential conflict over fiscal policies between Italy and the European Commission. But the leveraged finance markets are still keeping busy.

Corporate bond markets have enjoyed a good run since returning from the summer break. But for the first time since then, an external problem is causing turbulence. The Italian budget has become a live factor in market participation for buyers.

The Italian government’s economic growth expectations are likely to take a hit from “unintended tightening” of monetary policy if BTP yields keep rising, investors have warned.

The European high yield market appeared unfazed by the spike in Italian risk despite its heavy exposure, with calm secondary trading and Italian names daring to roadshow for new bonds.

A fresh Italian government bond market sell-off on Monday is unlikely to impact issuance from public sector borrowers during the rest of the week, according to SSA bankers.

Korea Housing and Finance Corporation (KHFC) and Berlin Hyp (BHH) are lining up new covered bond deals, but the sell-off in Italian sovereign debt risks weighing on the market.

Capital markets in Italy were plunged into an inferno of uncertainty this week, as investors appeared to lose confidence in the country’s economy and banks following the government’s release of its proposed budget, write Sam Kerr and Jasper Cox. Banks and companies looking to raise equity or debt face a tricky time.

Italian government bonds suffered another up and down week as investors first baulked at government plans for the budget deficit to be 2.4% of GDP in each of the next three years — then snapped up paper amid suggestions that the deficit would fall gradually. In any case, many on the buy-side are wary of any policy announcements that come from the government.

Italy bowed to pressure — some from the markets, but some from eurozone politicians — and revised down its budget deficit target this week. But the European Union should not go too hard on the country for the long-term health of the union.

The IPO of Tuscany cigar manufacturer Sigaro Toscano was postponed this week following a spate of volatility in Italian markets following the announcement of the government's proposed budget. However, the Milan listing of Piovan, which makes equipment for plastics processing, is still set to go ahead after a pricing range on the deal was set on Thursday.