Italian companies led an increase in the cost of insuring European debt after the collapse of Prime Minister Mario Monti’s government, while sales of corporate bonds slowed.
Credit-default swaps on Enel SpA jumped 31 basis points to 246, UniCredit SpA climbed 30 to 325 and Intesa Sanpaolo SpA rose 29 to 304, while Telecom Italia SpA was 15 higher at 292, according to data compiled by Bloomberg. Rome-based utility Enel SpA’s bonds were the worst performers in Bank of America Merrill Lynch’s Euro Non-Financial Index of corporate securities.
Monti, an unelected technocrat who tried to enact changes the previous government of Silvio Berlusconi was unwilling to implement, said Dec. 8 he will resign because of parliamentary opposition. Bond issuance slowed after last week’s busiest start to a December since 2008, with only Belgian oil agency Apetra and Finnish forester Tornator Oy tapping credit markets.
“Monti’s resignation demonstrates how vulnerable the cozy suspension of disbelief on Italy has been,” said Bill Blain, a strategist at Mint Partners in London. “It’s unlikely any new government will be able to keep political support and enact the much needed reforms Monti’s convinced us he’s been pushing through.”
The yield premium on Rome-based Enel’s 3.5 percent bonds due 2016 rose 28 basis points to 303 basis points relative to German government debt, the biggest gap since Oct. 3, data compiled by Bloomberg show.
Credit-default swaps on Italy jumped 38 basis points, or 15 percent and the biggest increase in a year, to a three-week high of 291. Swaps on Fiat SpA rose 28 basis points to 729. An increase signals deterioration in perceptions of credit quality.
“Populist forces and social unrest are mounting, and banks are suffering from austerity, unemployment and bad loans,” analysts led by Alberto Gallo at RBS wrote in a note to investors. “Italy heads into 2013 without a stable government.”
Yields on corporate bonds tightened one basis point last week to 119 basis points, according to Bank of America Merrill Lynch’s index, which tracks 948 investment-grade securities with an average maturity of 5.4 years. The spread was 201 at the start of the year.
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings climbed two basis points to 482. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose one basis point to 120.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased five basis points to 158 and the subordinated index rose seven to 270.
A basis point on a credit-default swap protecting 10 million euros ($12.9 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.