Italy

The Basque Government this week gave one of the best signs that investor worries about Italy’s political situation are unlikely to spill over to other countries as it printed a three times subscribed debut sustainability bond.

Against seemingly insurmountable odds, Italian industrial company Carel has managed to price its initial public offering during a political crisis which has forced companies across the board to postpone or cancel deals.

European government bond yields have climbed in the wake of an unusually hawkish turn in the tone of comments from members of the European Central Bank's governing council.

Preferred senior bonds, an ever smaller proportion of the bank bond market, showed real value as investors suffered heavy losses on more popular products in May.

The sell-off in Italy’s equity and debt markets in the lead-up to the creation of a new Italian government shows that investors are nervy about the euroscepticism of its new law makers, but Europe also has a part to play in ensuring that markets don't end up in straits such as the sovereign debt crisis of 2009-12.

The political upheaval in Italy is already making US investors go cold on European risk, which could magnify the market disruption Europe is likely to face in the coming months. The effects are even changing expectations on US monetary policy.

The furore over the identity of Italy’s new government has seemingly put at least a temporary stop to its IPO market, with some sellers looking to wait until a semblance of stability returns. Other European markets are operating as normal but bankers remain on alert should volatility worsen, writes Sam Kerr

Government bond yields and swap spreads suffering a state of vibrato from the political fugue in Italy this week led to near silence across the primary public sector bond market. But issuers are hopeful a period of relative calm late in the week will last — although they admit investors are holding the baton.

Investors and analysts are assessing Italian banks in light of the fall in their capital ratios resulting from their exposure to sovereign debt.

Jitters over Italy’s political turmoil receded slightly on Thursday, giving Asia’s stock and bond markets a bit of respite, even as talk of a trade war between China and the US reappeared.

Italy passed its first debt raising test since its yields blew out earlier in the week amid fears of another round of elections, as it auctioned bonds near the top end of its target volume range on Wednesday. But the sale did show the elevated borrowing costs the country faces.

Fears over Italy’s political woes spilling over into a full-blown eurozone crisis eased on Wednesday morning, as investors welcomed news that another round of elections could be avoided.