Italy

Moody’s downgraded Banca Carige’s residential mortgage backed covered bonds this week, but kept them in investment grade territory. Spreads barely moved in the aftermath, suggesting investors have already sold their exposure.

Italian construction group Astaldi’s bonds have taken a beating on concerns that its exposure to Turkish risk could derail plans for injection of needed capital. For some high yield investors, it also is a reminder of market vulnerabilities ahead.

Giancarlo Giorgetti, undersecretary to the Italian prime minister, has said that he expects the country to suffer an “attack” in the financial markets by the end of the month.

The Bank of Italy’s (BoI) proposal to loosen Obbligazioni Bancarie Garantite (OBG) issuance restrictions should be credit positive for the country’s small banks said Fitch in a report on Friday. Despite that, an improvement in distributed supply may prove limited.

The Italian banking sector could be hurtling towards another crisis this autumn, with the government’s budget negotiations expected to put pressure on the bond market, worsening funding conditions for banks, write Jasper Cox and Bill Thornhill.

Italy’s coalition government is taking investors on a wild ride, with different voices emanating from the populist grouping quickly shifting sentiment among the buy-side. But the juicy spreads the sovereign offers over its peers has helped provide some respite from the sell-offs, said analysts.

Italian FIG supply is likely to remain limited over the rest of this year as Parliamentary budget negotiations and concerns over the presentation of Banca Carige’s capital conservation plan raise deal execution risk. However, one or two covered bond deals cannot be ruled out.

Banca Carige’s covered bonds could soon be downgraded by Moody’s to sub-investment grade territory but, given the size and quality of the collateral pool, further downgrades could present a buying opportunity.

Italy’s coalition government is taking investors on a wild ride, with different voices emanating from the populist grouping quickly shifting sentiment among the buy side. But the juicy spreads the sovereign offers over its peers has helped provide some respite from the sell-offs, said analysts.

Italy’s new coalition government has not been kind to its equity capital markets, with IPOs especially hindered by uncertainty. Unless there is a dramatic change, ECM bankers do not expect much improvement in the autumn.

Green Italian bond supply has good scope to grow, and banks are likely to play a central role in the rise, according to Standard and Poor’s. Given the old age of Italy’s building stock and the importance of financing for small and medium-sized enterprises (SMEs), green covered bonds and green European Secured Notes could play a vital part.

BTPs sold off on Friday morning ahead of the Italian government’s crucial 2019 budget review, with yields reaching their highest level in two months.