{"id":1212,"date":"2013-03-18T10:30:00","date_gmt":"2013-03-18T10:30:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2013\/03\/18\/viewpoint-the-most-interesting-aspect-of-the-reaction-to-the-italian-political-crisis-is-the-total-lack-of-c"},"modified":"2013-03-18T10:30:00","modified_gmt":"2013-03-18T10:30:00","slug":"viewpoint-the-most-interesting-aspect-of-the-reaction-to-the-italian-political-crisis-is-the-total-lack-of-contagion-symptoms","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-the-most-interesting-aspect-of-the-reaction-to-the-italian-political-crisis-is-the-total-lack-of-contagion-symptoms\/","title":{"rendered":"Viewpoint: The most interesting aspect of the reaction to the Italian political crisis is the total lack of contagion symptoms."},"content":{"rendered":"

<\/span><\/span>To date, the Italian political crisis has had a relatively contained effect on bond valuations, and  has not prevented a spectacular decoupling of Spain, Ireland, and e Portugal from the Italian  market. However, it would be reckless to think that any further developments would have no repercussions, and that contagion risk has been entirely eliminated….\u2026.<\/p>\n

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For professional investors and advisers only<\/strong><\/p>\n

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The difficult political situation in Italy  represents the main potential  threat to a solution of the  debt crisis, overshadowing the complex negotiations over the bailout of Cyprus, the review of  the programme for Greece (also very prickly), and the challenges posed by the rebalancing of  the economy in Spain and Portugal. Admittedly,  repercussion have so far been contained  by  local and systemic factors, as described in our  WEM immediately following the vote: the  advanced stage of fiscal consolidation in Italy, the low level of net issues planned for this year,  the possibility (if demand wanes) of receiving  assistance from the ESM and the ECB. This  explains why to, to date, the markets have absorbed post-electoral uncertainty in Italy showing  relatively small price changes.<\/p>\n

The most interesting aspect of the reaction to the Italian political crisis is the  total lack of  contagion symptoms. The fact that rescue mechanisms are in place has undoubtedly made the  difference. However, in this case as well, an important role in supporting investor confidence has  been played by local factors:  <\/strong><\/p>\n

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  1. First of all, investors are reassured by signals that Spain\u2019s fiscal consolidation strategy in 2012  worked much better than was feared. In fact, Spanish debt was totally unaffected by tensions  in Italy: the rate on the 10Y bonos has dropped from 5.13% on the Italian election day to  4.87% at present. The performance of the local market seems to be enjoying the support of  foreign investment flows, as testified to by the ongoing and sharp reduction in the Banco de  Espa\u00f1a\u2019s net liabilities towards the rest of the Eurosystem (308 billion at the end of February,  25 billion less than in January).<\/li>\n
  2. Renegotiation of the promissory notes used by Ireland to recapitalise its banks has reduced the  Irish Treasury\u2019s financial requirements. Also  thanks to this move, on 13 March Ireland  managed to place a hefty 5 billion euros in 10-year bonds at a yield of just above 4%, well  below the cost paid by Italy.<\/li>\n<\/ol>\n

    Another factor reducing the risk of a deepening  of the crisis is the flexibility shown by the <\/strong>European Commission on Portugal\u2019s fiscal targets:<\/strong> the country is likely to be given a one-year  extension, which would make the fiscal effort required in 2013-14 more credible, and eliminate  the risk of the programme stalling now that 80% of the funds have already been issued.
    Is all well, then?<\/strong> It would be reckless to think so. A slight faltering of demand for government  bonds at the latest auctions, and the trend of the Bank of Italy\u2019s net liabilities towards the rest of  the Eurosystem (which worsened back in February, contrary to Spain) warn that while investors  are showing greater tolerance, they are not indifferent.  Although many of the foreseeable  scenarios may ultimately prove to be by all means acceptable, stability is not guaranteed  independently from the political choices made  in terms of the formation of the government.<\/p>\n

    There are thresholds that cannot be crossed without causing damage: for instance, confidence  may plunge rapidly in the event of a return to the polling stations with forces openly opposed to  the respect of the European Treaties leading the opinion polls. In this case, the very credibility of  the rescue mechanisms would be questioned, based as they are on a trade between financial  assistance on the one side, and macroeconomic reforms and fiscal discipline on the other.
    And  what would happen to the euro area if Italy\u2019s membership were ultimately questioned? In such a  scenario, contagion risk faced by other countries would again become tangible, despite the  OMT programme and the progress made in the meantime on the fiscal consolidation front.<\/strong><\/p>\n<\/p><\/div>\n

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    Appendix
    <\/strong><\/p>\n

    Analyst Certification<\/strong>
    The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.<\/p>\n

    Important Disclosures<\/strong>
    This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
    Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
    This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient\u2019s own judgement.
    No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
    This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
    Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (\u201cResearch Policy\u201d). The Research Policy is clearly explained in the relevant section of Banca IMI\u2019s web site (www.bancaimi.com).
    Member companies of the Intesa Sanpaolo Group, or their directors and\/or representatives and\/or employees and\/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and\/or sale, or offer to make a purchase and\/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and\/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
    US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).

    Valuation Methodology<\/strong>
    Trading Ideas are based on the market\u2019s expectations, investors\u2019 positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and\/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and\/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.

    Coverage Policy And Frequency Of Research Reports<\/strong>
    Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer\u2019s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A\u2019s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI\u2019s web site (www.bancaimi.com) or by contacting your sales representative.<\/p>\n

    Source: BONDWorld – Intesa Sanpaolo \u2013 Research Department<\/p>\n","protected":false},"excerpt":{"rendered":"

    To date, the Italian political crisis has had a relatively contained effect on bond valuations, and  has not prevented a spectacular decoupling of Spain, Ireland, and e Portugal from the Italian  market. However, it would be reckless to think that any further developments would have no repercussions, and that contagion risk has been entirely eliminated….\u2026. […]<\/p>\n","protected":false},"author":2,"featured_media":3455,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"telegram_tosend":false,"telegram_tosend_message":"","telegram_tosend_target":0,"footnotes":"","_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[50],"tags":[],"class_list":["post-1212","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-weekly-analysis"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"_links":{"self":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1212","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/comments?post=1212"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1212\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media\/3455"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1212"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1212"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1212"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}