{"id":1327,"date":"2013-09-13T14:00:00","date_gmt":"2013-09-13T14:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2013\/09\/13\/viewpoint-the-italian-treasury-has-managed-to-wrap-up-september-auctions-with-no-major-damage\/"},"modified":"2013-09-13T14:00:00","modified_gmt":"2013-09-13T14:00:00","slug":"viewpoint-the-italian-treasury-has-managed-to-wrap-up-september-auctions-with-no-major-damage","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-the-italian-treasury-has-managed-to-wrap-up-september-auctions-with-no-major-damage\/","title":{"rendered":"Viewpoint: The Italian Treasury has managed to wrap up September auctions with no major damage"},"content":{"rendered":"

Another round government bond auctions has been wrapped up, and political instability in Italy  still seems to be having limited repercussions on  the market. However, a full-fledged political  crisis is not yet part of the markets\u2019 base case scenario, and it would be reckless to blindly trust  their resilience. .…<\/span> <\/span><\/strong> <\/span> <\/span><\/span><\/p>\n

<\/p>\n

\n

Sign up for our free newsletter to receive weekly news from BONDWorld
Click here to register for your free copy<\/strong><\/a> <\/strong><\/a><\/p>\n

\n

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

\n

 <\/p>\n

Despite the far from reassuring political situation, the Italian Treasury has managed to wrap up  September auctions with no major damage. The amounts offered were entirely absorbed at only  modestly higher yields, dissolving hopes of any substantial savings on interest spending, but at  the same time safeguarding the drop in the weighted average cost of debt issued this year to a  modest 2.2%. On the secondary market the reversal of the yield spread versus Spain is gaining  strength, but yields remain close to their three-year lows. One may be tempted to conclude that  investors are virtually unfazed with regards to the outcome of the political stalemate. However,  such a conclusion would be reckless, as it turns a blind eye to both the reason behind the  measured reactions seen in the past few days, and to the other developments which are  influencing the market\u2019s resilience to external shocks. <\/p>\n

At present, the no-panic attitude reflects the idea, very widespread, that a government crisis  would represent an irrational outcome for all the parties involved. We do not intend to discuss  this view here; however, we do point out that is based on four assessments:<\/p>\n

(i) a political crisis  would not improve the personal position of the leader of PDL, Berlusconi;<\/p>\n

(ii) Parliament would  probably not be dissolved swiftly by the President;<\/p>\n

(iii) new elections  would probably fail to  appoint clear winners, (iv) there would be negative consequences for the Italian economy and  for Italian public debt. If this persuasion is deluded and a full-fledged political crisis does break  out, the surprise factor would plausibly trigger sharp market movements \u2013 unless Parliament  rapidly managed to express an alternative majority capable of offering the prospect of  governability, and\/or polls in view of an election indicated a clear majority. In this case, capital  inflows would dry up again, with the risk of a new tightening of financial conditions and  plunging confidence smothering the recovery at its inception. <\/p>\n

This brings us to the topic of  resilience. On the  institutional front, the situation has greatly  improved since 2011, when foreign investors started to flee the Italian market: any financial  stress could now be countered by the activation of an ESM support programme (precautionary,  if the crisis were intercepted in time), reinforced by the application to the ECB to activate OMTs.  The consequences on liquidity would be mitigated by access to ECB credit, which presumably  would not be denied even in the event (not unlikely, within the context of a political crisis), of  aggressive rating downgrades by the rating agencies. However, the activation of an ESM  programme is not possible without widespread political consensus, as recently stressed by the  Minster of the Economy, and would imply a significant surrendering of sovereignty to external  institutional bodies (Eurogroup, European Commission, ECB and, if involved, the IMF). As  regards fundamentals, the share of public debt held abroad remains small, the current account  of the balance of payments is now showing a surplus, and the deficit has decreased to around  3% of GDP. On the other hand, two further developments \u2013 one recent, the other not so recent  \u2013 have reduced the system\u2019s ability to cope unassisted with new capital inflow constraints. First,  the increase in net issuance over the coming months from negative to widely positive levels, as  indirectly prospected with the request to raise the ceiling to 98 billion. Second, the significant  weight of government bond portfolios on the banking system\u2019s total assets, up by four points  since April 2011, which makes Italian banks less apt to act as a buffer in case of a massive sell- off by foreign investors. <\/p>\n

Lastly, the Italian institutional crisis, whether it should remain acute or revert again to latency,  fuels doubts on the possibility of revamping the country\u2019s growth potential by means of  structural reforms. This could even affect  assessments of the sustainability of debt: a  development that would make the risk of a confidence crisis all the more likely, and that has to  be prevented.<\/p>\n

\n

Appendix
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

Normal 0 14 MicrosoftInternetExplorer4<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Another round government bond auctions has been wrapped up, and political instability in Italy  still seems to be having limited repercussions on  the market. However, a full-fledged political  crisis is not yet part of the markets\u2019 base case scenario, and it would be reckless to blindly trust  their resilience. .…   <\/p>\n","protected":false},"author":2,"featured_media":3568,"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-1327","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\/1327","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=1327"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1327\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media\/3568"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1327"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1327"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1327"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}