巴黎银行-欧洲-宏观策略-聚焦欧洲：意大利，评级行动会有什么影响？-20181018-16页_1mb

FOCUS | EUROPE: Impact of Rating Actions on Italy

Core Content

This report analyzes the potential impact of rating actions on Italian government and corporate debt, focusing on market reactions, ECB eligibility, and collateral rules. It also examines the behavior of investors and the sensitivity of credit markets to rating changes.

Key Messages

• Forced selling is unlikely in the medium term, as a two-notch downgrade by two agencies is required to push Italy out of major indices.
• ECB eligibility of Italian bonds will remain unchanged as long as at least one of the four rating agencies (Moody's, S&P, Fitch, DBRS) assigns an investment-grade rating (BBB- or higher).
• Downgrades may prompt CCPs to review haircuts, but changes are expected to be limited to investment-grade territory.
• Rating methodologies differ, and corporate bonds may be rated higher than sovereign debt due to their domestic nature.

Ratings Outlook

• Moody's is expected to downgrade Italy's rating by one notch by the end of October, with a stable outlook more likely than a negative one.
• S&P is likely to shift to a negative outlook on 26 October, but a one-notch downgrade is not expected due to limited economic deterioration.
• Fitch is not due to review its rating soon, but a downgrade is expected eventually.

Market Views

• Index eligibility for Italian bonds depends on the average rating of the three major agencies. A significant downgrade would be needed to push BTPs out of major indices.
• Repo rates may increase due to reduced appetite for stressed sovereign bonds, but the ECB's decision to no longer accept sovereign bonds as collateral is unlikely in the short term.
• CCPs may review haircuts in response to rating downgrades, especially if Italy is downgraded to non-investment grade.

Credit Valuation Adjustments (CVAs)

• CVA models in the banking industry vary. Some use external ratings, while others use internal models.
• Sovereign CDS levels and long-dated euro rates have historically correlated, but this relationship has weakened recently.
• Banks' exposure to BTPs is manageable, even with further widening, as long as economic growth remains stable.

Investor Behavior

• Non-resident investors have been reducing their holdings of Italian debt, from EUR772bn in April to EUR714bn in June.
• Domestic ownership is high at 66%, with the Bank of Italy holding a significant portion.
• Italian funds have also been reducing exposure to corporate debt, with the ECB being the main net buyer.

Impact on Corporates

• Non-financial corporates may be rated up to two notches above the sovereign if the sovereign is rated BBB.
• Financial corporates are more sensitive to sovereign ratings and may face automatic downgrades if the sovereign is downgraded.
• Rating downgrades may not significantly impact major non-financial corporates like Eni, Enel, and Atlantia, as they are more diversified and less reliant on domestic markets.

ECB Eligibility and Haircuts

• ECB eligibility for Italian bonds is based on four rating agencies and four categories: debt issuer, type of debt, and maturity.
• Haircuts for Italian government bonds range from 6% to 13% depending on maturity and type of bond.
• Collateral rules for repos and CCPs vary, with haircuts typically increasing with maturity.

Conclusion

• The impact of rating downgrades on Italian debt is expected to be limited in the short term due to the ECB's continued acceptance of Italian bonds as collateral.
• Market reactions to ratings are varied, with some investors cutting exposure ahead of potential downgrades.
• Domestic investors remain a key pillar of Italian debt ownership, and their behavior is less sensitive to rating changes compared to non-residents.
• Corporate debt is more resilient to sovereign rating downgrades than government debt, especially for those with international exposure.

Appendix

• Figures 1-12 provide detailed ratings, haircuts, and market data.
• Appendix 1 outlines the potential impact of sovereign downgrades on corporate ratings.

Disclaimer

• This document is a marketing communication and has not been prepared by the BNP Paribas Research Department.
• It is directed at Professional Clients and Customers as defined by MiFID II.