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CREDIT COMMENTARY
Nov 27, 2013
Monte subordinated debt surges
Italian banks were once again the standout performers in a day subdued by tomorrow's Thanksgiving holiday.
Banca Monte dei Paschi's subordinated CDS spreads rallied by a further 65bps today, meaning that since Monday it has tightened by more than 100bps. The bank announced yesterday that its board had approved a €3bn rights issue, which will strengthen its capital position assuming it gets the go-ahead from shareholders. More importantly for subordinated bondholders, it means that a nationalisation has probably been averted. Subordinated debt would be at high risk of being "bailed-in" under a nationalisation scenario, so the positive market reaction to the rights issue news is understandable.
Elsewhere, the Markit iTraxx Europe continued its slow rally, tightening 1bp to 77bps. The ECB stated in its latest financial stability report that QE tapering poses a risk to the eurozone, but this is hardly news to the market.
At the moment, investors feel comfortable with the current situation, and mixed US economic data released today did little to change the status quo. Weak durable goods orders were offset by better than expected initial jobless claims. The Markit CDX.NA.IG was unchanged at 68.5bps.
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