17 September 2019 by jbchevrel
Today Italian banks underperformed in not just the iTraxx Senior but also in the Main. UCGIM, ISPIM and BACRED saw their 5y CDS widen by ~+4bp in senior and +7/+8bp in sub. That echoed a notable underperformance of BTPs, wider ~+10bp vs Bund on the 10y, after former Italian PM Matteo Renzi declared in an interview with La Repubblica that he is leaving the democratic party (PD) to create his own one ‘Italia Viva’ (ironically enough meaning ‘Italy is alive’). The market assessed a higher probability of the current coalition collapsing, which sounds fair, especially going from tight absolute levels (yday close -- BTP/Bund ~130 Italy $14 ~117). It seems like an early comeback for Renzi, less than 3 years after the constitutional reform debacle. According to the local press, ~30MPs will follow him and he should be starting at ~5% in the polls. Renzi said that in the short term he would continue to support the recently built PD-Five Star Movement coalition. But. To be honest. I struggle to see where in the Italian political landscape Renzi could build enough support to play it alone, here. Because it looks like the main place (to not say the only place) where Renzi can gain support from is the PD he just left. Forza Italia is closer to the right end of the spectrum than to the center-left, and almost all its voters seem to have gone for Lega or Fratelli d’Italia (FDI) anyway... Forza Italia is polling ~6% compared to Lega ~35% and FDI ~8%. Lega/FDI voters are highly unlikely to switch to Renzi, and Five Star Movement (5SM) voters are less likely to shift to Renzi than to an ex-Renzi PD, the latter being (rightly) perceived as more left and undoubtedly less in a rush for constructive structural reforms. Renzi probably hopes to achieve what Macron achieved back in 2017, but a key difference here is that the sum of the poll-derived supports for ‘populist’ parties is much higher than it was in France, back then: Lega + 5SM + FDI totaling ~55% while in France in 2017, populist parties were totaling ~40%. Adding to that, the perception that Renzi has already been in charge. Bottom line, if the polls remain around here, it should not make sense for Renzi to break away from the PD-5SM coalition. Adding to this, the upcoming CDS roll and the fresh net purchases from the ECB side (€20B/month total APP – so ~€2B/month Italy), I would be tempted to think that any relative widening of the Italian complex (sovereign, fins) is poised to remain contained. Elsewhere in Italy, the other respective departures of CEO Castellucci (from Atlantia – ATLIM) and De Rossi (from AS Roma) have been dominating the local headlines. As far as the former, ATLIM 5y CDS has been trading sideways since last March roll, in a 100-150bp range, and it closed right in the middle today, at 125bp.