The first round of the presidential elections in France did not reserve big surprises, with the Emmanuel Macron's move to the second round and Marine Le Pen. The advantage recorded by the first (23.8% vs 21.4%) allows us to reinforce the expectation that in the second round the candidate of the En marche! can obtain a large majority, thus reducing the risk of the affirmation of Le Pen's anti-euro party. This would lead to a generalized reduction of risk on asset classes linked to the euro, in relation to both the government and corporate sectors.
Fitch lowered Italy's sovereign rating by one notch last Friday, from BBB+ to BBB with a stable outlook. The greater political risk linked to the new Gentiloni government considered "weak and unstable", the weakness of Italian banks still grappling with the de-risking on the loan side, and the increase in the Debt ratio weighed on the rating agency's opinion /GDP to 132,6% (+11.2%) compared to the objectives set in the 2013 stability programme). In the immediate future, this event, especially thanks to Macron's awaited affirmation in the French presidential elections, will have a very limited impact.
The base rates showed a generalized increase in the week considered, above all of the German curve and the IRS curve, while the Italian government bond curve remained substantially unchanged. In detail: Bund curve +8bp 1yr/+15bp 10yrs; IRS curve -1bp 1yr/+15bp 10yrs; BTP curve -2bp 1yr/-2bp 10yrs. On the Italian financial securities market, credit spreads on the cash market remained basically unchanged, with the Z-spread composite curve of IG issuers moderately flattening (+5bp 1yr/-5bp 10yrs).
The moderately negative performance in terms of cash price in both the senior and subordinated segments is basically linked to the rise in IRS rates. The single name CDS market, on the other hand, saw a diverging movement between senior and subordinated instruments. The former showed a consistent tightening, while CDS Subs recorded a generalized increase on the short-term part of the curve (with the sole exception of Intesa). In the light of the first electoral result in France, a re-pricing of credit risk is expected immediately, with a reduction in credit spreads in particular for sub-IG issuers.
The market for Italian IG industrial corporate bonds saw, in particular, an underperformance by Atlantia bonds against the company's interest in the Abertis Group. Acquisition expected with large increase in group leverage, expected to increase from 3.4x current to 5x expected.
