Italian Sovereign Spreads

Download or read book Italian Sovereign Spreads written by Ms.Edda Zoli and published by International Monetary Fund. This book was released on 2013-04-03 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volatility in Italian sovereign spreads has increased since mid-2011. This paper finds that news on the euro area debt crisis and country specific events were important drivers of sovereign spreads. Movements in sovereign spreads affect CDS spreads and bond yields of Italian banks, and are transmitted rapidly to firm lending rates. Banks with lower capital ratios and higher nonperforming loans were found to be more sensitive to swings in sovereign spreads. Credit supply constraints due to bank funding shortages from the sovereign debt crisis were a major factor behind the lending slowdown in late 2011, while in 2012 weak demand appears to have been driving changes in credit more than supply.