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One's Poison is Another's Food

09 August 2019 by jbchevrel

Today Italian CDS were pressured wider, along with the sovereign, on the back of higher early election odds. Italian banks’ CDS led the way wider. Intesa sub CDS is wider +32. Medio +33.5. UniCredit +33. The 10y spread between BTPs and Bunds soared from c210 to almost 240. However, on the corporate side of things, one Italian name outperformed. And for the exact same reason. Indeed, Atlantia SPA (ATLIM) 5y CDS is slightly tighter on the day (-1bp). And its stock has soared +4% before paring some of the gains. Italian next general election being likely before the end of this year, the risk of a concession withdrawal for the Autostrade per L’Italia unit is seen as lower by the consensus. Some brokers even upgraded their price targets for the name. At the risk of stating the obvious, ATLIM’s relations with the Italian government have been bad since the Genova bridge collapse. Five Star’s Di Maio was amongst most vocal politicians calling for the company to be stripped of its highway-management concession. And looking towards the polls, this guy isn’t surely going to be in the next government. Beyond ATLIM’s micro reasons to outperform, reasons to think that Italian risk will revert in a three-month horizon are multiple. A dovish ECB adds to the fact that a confidence vote doesn’t necessarily mean a disastrous outcome for Italy. Indeed, first, confidence votes do not guarantee early elections if a new stable majority can be found in Parliament. And even if a new stable majority does not occur, early elections are not guaranteed, and the President of the Republic has then the power to appoint a technocratic government while postponing general elections to 2020. Last but not least, the fact that the Lega party is ‘breaking up’ with populist Five Star movement (which is arguably more Euro-sceptic and less fiscal responsible) has room to end up being a positive development for fiscal, businesses while being a non-negative for relations with EU partners.