Italy

Italian prime minister-designate Mario Draghi must walk a knife-edge if he is to form a government and present a national recovery and resilience plan. If he takes too hard a line the mill of Italian politics will chew him up and spit him out. If he is too quick to compromise, the EU’s life as a giant bond issuer may be shorter than hoped.

Relief swept through secondary bond markets when Mario Draghi agreed to form a new government to steer Italy through the pandemic. But he must tread a narrow and treacherous path if he is to succeed and primary capital markets are to feel any lasting benefits. As Lewis McLellan and Tyler Davies report, next week will show whether Thursday’s burst of optimism was justified.

If he can form a government that holds the demons of Italian politics at bay long enough to drag his country through the coronavirus pandemic, then Mario Draghi will have earned his laurels. But in Rome, glory has always been fleeting.

The possibility that former ECB chief Mario Draghi may become the next Italian prime minister has caused excitement among bond market participants and a sharp rally in risky assets.

UniCredit’s decision to align the definition of a defaulted receivable mortgage loan with the issuer's internal classification will have a negligible impact on the quality of the cover pool, said Moody’s.

The European Central Bank meeting on January 21 did not strike a pleasing note for investors in eurozone government bonds, and spreads are still wider. But primary market participants seem unconcerned.

European Central Bank president Christine Lagarde refused to be drawn into naming a specific spread target that the central bank will defend in a press conference on Thursday but investors may find out for themselves in the wake of the meeting. BTPs sold off sharply after Lagarde spoke, perhaps indicating that the central bank has not done enough to convince investors of its support.

Italian prime minister Giuseppe Conte won a vote of confidence in the country's senate last night, removing the immediate threat of the government he leads collapsing. Relieved investors flocked back to Italian assets in the aftermath but Italy’s political troubles are unlikely to be over.

Banca Monte dei Paschi di Siena has published a new business plan for the next four years, targeting a return to profit in 2022. The plan relies on the bank receiving a capital injection of at least €2bn, which is still under discussion with authorities in Italy and the EU.

Italia Viva has withdrawn its ministers from the support of the Italian government, sparking a political crisis in the country. However, Italy’s sovereign bonds are trading within a comfortable range versus Bunds thanks to the support of the European Central Bank.

Banco BPM was unable to tighten through initial price thoughts for a new additional tier one on Tuesday, as it looked to maximise its regulatory allowance for the asset class.

UniCredit raised €2bn of preferred senior funding with a careful trade on Tuesday, as investors come to terms with a new pricing paradigm in the bank bond market.