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Raise a Glass to Malbec! Malbec World Day, April 17 | SaltWire #reels #shorts #wine #foodMILAN - Investors who have snapped up high-yielding Italian bonds over the last year on the assumption they were protected from risk by the European Central Bank are now taking a close look at the ECB's rulebook to gauge whether their investment is safe.
With the yield gap between Italian 10-year BTPs and German Bunds currently hovering around just 1.4 percentage points , there is no near-term prospect of the TPI being used, but markets are looking ahead. This prompted a flurry of notes by investment banks to clients because one of the ECB's criteria for activating the TPI is that countries must not be subject to an EDP or, if they are, must have taken the required corrective action.The picture is not clear-cut, however. Most analysts spoken to by Reuters say the ECB has left itself enough wiggle room to use the tool if markets attack Rome's 2.9-trillion-euro public debt, threatening euro zone stability.
"If Italy were to be in an Excessive Deficit Procedure, but to reduce its deficits in line with what is requested by Brussels, then the country would still be eligible for the TPI," said Chiara Zangarelli, European economist at Morgan Stanley. An ECB spokesperson said this meant no country would be disqualified solely because it was subject to an EDP.
Franziska Palmas, senior economist at Capital Economics, said these problems meant there was a strong chance the mood towards Italy"will turn more sour in the next year or so."
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