S&P Revise Italy’s Outlook to Stable from Positive Rating

S&P Global Ratings agency said on Tuesday it had revised its outlook on its BBB/A-2 ratings on Italy to stable from positive. The change reflects impact of the global effect on Italy’s economy and on sovereign’s fiscal position. The Italian Prime Minister Draghi resigned last week and there will be new elections later in the year.

Italy Parliment House

The ratings agency affirmed all of its sovereign ratings on the country and said the stable outlook balances rising risks to the economy and public finances from external and domestic factors.

“The stable outlook reflects the risks that a slowdown or reversal of reforms” may have on the Italian economy and public finances, says Standard & Poor’s, stressing how “the review also reflects rising inflation and risks to Italy’s energy supply.”

Standard & Poor’s notes that the early vote “comes at a difficult time” for the Italian and European governments.

The agency also does not rule out a complete halt to gas flows from Russia this would cause Italy records negative GDP growth in 2023 and 2024. Currently, Standard & Poor’s estimates Italian growth at + 2.8% in 2022 and 1.9%. in 2023.

“This is an important moment because there are many reforms and programs in framework of the European plan. We hope that the reforms will be made, they will be useful for Italy. Whatever government is in power we hope to support it,”

Italy’s Bond Yields rise after Ratings Change

Italy’s government bond yields rose in early trade Wednesday, after the S&P Global revision triggered an underperformance of Italian bonds.

Italy’s 10-year bond yield rose 12 basis points (bps) to 3.47%, pushing the closely watched spread over top-rated Germany to around 252 bps versus 240 bps late the previous day. This was its widest since mid-June, when the European Central Bank held an emergency meeting to discuss strains in euro area bond markets.  Last week, the ECB hiked interest rates by 50 bps.  

Source: Reuters

From The Traders Community News Desk