(Bloomberg) -- Italian bonds rallied and bank shares were bolstered after the defeat of euroskeptic politician Matteo Salvini in a regional vote eased fears of a snap election.
Benchmark yields tumbled to a more than two-month low and stocks managed to avoid a global sell-off as the populist firebrand failed to win in the leftist stronghold of Emilia-Romagna, boosting Prime Minister Giuseppe Conte’s fragile coalition. The spread between Italian bonds and their German peers, a barometer of risk, narrowed by the most in six months.
Italy Populist Defeated in Key Vote, Lifting Conte Coalition
“Italian bonds should react positively to the center-left victory,” wrote Chiara Cremonesi, fixed-income strategist at UniCredit SpA, who sees Italy’s 10-year yield premium over Germany narrowing toward 135 basis points.
Italian stocks managed to avoid the global sell-off fueled by worries over the coronavirus outbreak, with the FTSE MIB trading little changed. Banks outperformed, with the FTSE Italia All-Share Banks index rising 1.2%.
“The results of the elections support continuity in the national government, which we see as a positive for the sovereign spread, and in turn for banks,” “No political instability from regional elections is positive for Italian banks,” Mediobanca analysts led by Andrea Filtri wrote in a note.
- UniCredit SpA climbed 1.5%, Banco BPM SpA was up 1.8%, UBI Banca advanced 1.7%. The shares are sensitive to the spread between Italian debt and German bunds
- Italian bank bonds, known as CoCos, outperformed the rest of the sector. Intesa Sanpaolo (MI:ISP) SpA’s 1.25 billion-euro ($1.38 billion) 7.75% perpetual note jumped nearly a cent on the euro to about 124, its biggest gain for over a month
- The yield on Italy’s benchmark 10-year government bond was 17 basis points lower at 1.06%, narrowing the premium over Germany by 16 basis points to 140 basis points.