Italy’s risk score is barely indistinguishable from Spain and below Colombia, highlighting Rome’s fall from grace
Italy’s risk is barely distinguishable from Spain’s, according to its overall ECR score, despite a disparate yield spread – Italy’s 10-year benchmark government bond yield, at 6.1%, is trading at a 4.9 points premium to the equivalent bund, compared to a bund-spread of some 5.6 points on Spanish 10-year debt.
Italy’s structural assessment is a little better than Spain’s, but its economic and political assessments differ more. Italy’s economic risk is lower than Spain’s, but has been increasing over the past six months, reflecting the country’s downgraded economic outlook. Scores for all economic sub-factors have been lowered.
Italy’s political risks are higher than Spain’s, even though they have remained fairly stable over the past six months. The Spanish government, under pressure domestically, has a majority. Italy’s technocrat government is to be replaced next spring.
According to Nicholas Spiro, Managing Director of Spiro Sovereign Strategy, and one of ECR’s contributors,
“Italy’s perceived creditworthiness is being externally-driven. The country’s chronically stagnant economy and high debt-to-GDP ratio are nothing new, and the country can cope with 7% average yields. But it is not a master of its own fate. Its comparatively better fundamentals vis-à-vis Spain haven’t stopped Italy being dragged into the crisis. Investors are asking questions about what a post-Monti political landscape will look like. Plus, austerity is biting hard and it is unclear what will happen if Spain spirals out of control".