Analysts at ANZ explained that as political turmoil continues, credit risk in Italy is climbing. Since early May, credit default swaps – the cost of insuring Italian bonds – have surged 77bps to 165bps.
Key Quotes:
“Put in context, this remains well below the 560bps seen in 2012. Nonetheless, these sorts of spikes are reminiscent of those seen during the European sovereign debt crisis. Markets are insuring against deterioration in solvency in the region and the risk that Italy leaves the euro.”
“Meanwhile, Moody’s has put the country’s sovereign rating on watch for a downgrade, as a result of possible deterioration of the fiscal position under proposed policies of Five Star Movement and League parties.”
“With uncertainty set to continue, further pressure on Italian credit spreads seems likely, leading to tighter financial conditions in an economy that continues to languish – with unemployment at 11%.”
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