Italy: Political high-wire act

Commerzbank Corporates & Markets
Interest Rate Strategy

Italy: Political high-wire act

Italy: Political jitters stage a stunning comeback. BTPs underperformance may prevail also in the sessions ahead.

https://research.commerzbank.com

Italy: to expel or not to expel?

Political uncertainty stages a stunning comeback in Italy, too. Besides a meeting between Letta and President Napolitano, the PM’s cabinet will be meeting today to adjust the 2014 budget which needs to be presented to the EU Commission next month. The next banana skin lying in the way of Letta’s political survival will be the VAT hike by 1pp which could come into effect from Tuesday. With no backtrack on this issue, the political cohesion among coalition members prior to a public hearing of the committee (4 October) will be even further weakened. In case of the Letta government eventually collapsing we consider an attempt by President Napolitano to form a new parliamentary majority more likely than snap elections. With the political crisis in Italy heating up, BTP’s underperformance may prevail not only today but also in the sessions ahead. Ripple effects out of Italy are also felt in SPGBs which keep staging considerable spread widening versus Bund. Yet, we stick to our bullish view on 10y

Analyst:
Markus Koch

Analyst:
Peggy Jäger

https://research.commerzbank.com