Markets prefer to see the glass half full. No earthquake in Piazza Affari after downgrade by Moody's which brought Italy's rating to Baa3 on Friday with the markets closed, one step above the "junk". The Milan Stock Exchange opens sharply and then reduced gains to +0,7%. The spread is clearly decreasing.
The differential between Italian BTPs and German Bunds drops below 290 basis points from 315 on Friday (at 10.40 the spread is at 300 points) with a yield of 3,436, also bringing with it all the othergovernment bonds of the euro area which started trading lower than the benchmark. The spread between Spanish bonos and bunds dropped to 122 points (-9,3%) with a yield of 1,688%, that between Portuguese Ots and German bonds reached 152 points (-6,49%) with a yield of 1,992. The ten-year French market was also down, settling at 36,8 points.
The recovery of spreads is driven by Moody's decision to bring the outlook from negative to stable, thus leaving Italy some "hope" for the future. Furthermore, the increase in the outlook makes a new decision on the rating by Moody's and, consequently, a possible downgrade to the junk rating, further away, at least for now.
“The economy is large and diversified”, explains the Agency, and if Italy gets back on the right path in terms of reforms, recovery is still possible. The situation could improve even in the event that the progress promised by the Lega-M5S government, to date difficult to achieve according to economistswould turn into reality.
In this context, it must be taken into consideration that our country will have to face yet another judgement, with Standard & Poor's which will communicate its rating on Friday on Italy (currently the rating is BBB). It should be emphasized that today, 22 October, by 12.00 today, the Government will have to send the European Commission the reply to the comment on the Italian Draft Budgetary Plan in which the EU executive spoke of an "unprecedented deviation".
