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Italian Pain

07 April 2016 by lberuti

The above grapple depicts the trajectory of iTraxx Financials Senior Series 24 – it is not the on-the-run series, but series 25 only goes back a couple of weeks -, and it is quite obvious that this sector has not benefitted in away from the ECB bazooka shot. It looks as if QE ultra-low yields are actually holding the banks back, and some analysts are arguing that one of the key downside risk for these institutions is actually persistently low inflation and QE extension. Adding to the sector woes, Italian banks have been under particular scrutiny as the amount of non-performing loans that they are holding in their portfolio recently reached an all-time high and authorities are putting them under increased pressure to improve asset quality. People actually suspect that the ECB could start dictating the pace of problematic loan sales in specific cases. At 14bps, the difference between iTraxx Financials Senior and iTraxx Main, is at the widest it has been on series 24.