Italy

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.

Italian cigar maker Sigaro Toscano has postponed its Milan IPO because of stock market volatility.

Italian government bonds enjoyed a strong start to Wednesday morning as investors digested talk that the country’s budget plans could be less spending heavy than previously thought. But the buy-side was sceptical that Italy’s populist government will stick to the plans — and BTPs had already retraced some of their earlier gains by the late morning.

Italy’s latest political drama is making investors nervous, and rightly so — when the leader of a country’s main governing party accuses European leaders of market ‘terrorism’, in the vein of an ‘EU equals the USSR’ conspiracy theorist, then you’d be right to dump its bonds. But the steadiness of Spanish and Portuguese govvies through all this shows not only that the term ‘eurozone periphery’ may have to be consigned to the historical dustbin, but that the firewalls erected by those same European leaders after the last sovereign debt crisis are standing firm.

Italy’s announcement that it plans to overshoot the European Commission’s budget deficit limit has spooked markets at a crucial time for the country’s banks.

The Italian cabinet has agreed upon a budget deficit target of 2.4% of GDP for the next three years, rejecting the finance minister’s 1.6% target proposal, causing Italian assets to sell off.