22 January 2020 by jbchevrel
Italian risk opened on the back foot today. The (in)famous 10y BTP-DBR spread opened wider +10bp at +170bp. That was the widest level YTD. The sovereign CDS and the banks followed BTPs wider on reports that governing coalition member and Five Star Movement leader Luigi Di Maio could announce his resignation today. He allegedly faced pressure from the 5-star party’s founder, Beppe Grillo, to stop picking fights with his partner in PD. Italian risk then reverted as people weighed what it actually meant for the survival expectation of the Lega-less coalition. Net net we close the day only a tad wider. The 5y CDS is +2.5bp wider. Political risk is the place to watch for the CDS to move significantly. Back in 2018, despite the ECB was in the market, the CDS went from less than 100bp to almost 300bp when the populist coalition got formed. We have reverted a lot since then, including a chunky 70bp rally in Aug-Sep 2019 due to 1/ the 5sM-PD coalition being formed 2/ the ECB’s CSPP re-start. As one could have expected, the one Italian CDS which outperformed today is Atlantia SPA (ATLIM), frequently commented in this blog. Today is closed tighter -12.5bp. Noteworthy that this was despite Paola di Micheli and Luigi Di Maio repeated their calls for revocation.