Ferrari (NYSE:RACE) a Safer ‘Bet’ than Italian Government Bonds
Italy’s iconic luxury carmaker Ferrari (NYSE:RACE) and Exor, the owners of Juventus football club, are among many Italian companies that can now borrow money more cheaply than Rome’s crisis-hit government.
Italian sovereign bond yields rose this week to some of their highest marks in years on fears that the country’s anti-EU politicians could win a stronger hand in potential elections, reviving the possibility of a Eurozone break-up, or at least bring us a repeat of the EU’s 2011-2012 crisis.
Italy’s government bonds recovered some of their losses Thursday, but still the bonds of nearly 67% of non-financial companies in Italy’s FTSE MIB equity index have lower yields than that of the sovereign indicating that investors find them more creditworthy than the government.
Italian corporate bond yields have also risen over the past week but not as dramatically as the government or sovereign bonds.
The Italian 6-year benchmark bond saw yields rise 91 bpts to 2.91%.
Sovereign bonds are usually considered safer than bonds issued by companies, given the latter have a higher chance of defaulting on creditors or going bankrupt. But a select group of Italy’s powerful global multinationals carry higher credit ratings than the country where they are based.
Ferrari’s Y 2023 bond, not currently rated by any of the major ratings agencies, carries a yield of 1.29%, lower than the 1.98% yield paid by an Italian sovereign bond that matures 2 weeks earlier.
Ferrari makes just 17% of its sales in Italy.
Italy is ranked BBB by Standard &Poor’s, 2 notches above Junk. Moody’s has warned of a possible downgrade to Italy’s rating if the fiscal policies of the next government did not put the country’s public debt ratio on a sustainable downward trend.
|NYSE:RACE||131.34||31 May 2018||1.09||130.38||131.98||129.57||207,316|
|HeffX-LTN Analysis for RACE:||Overall||Short||Intermediate||Long|
|Bullish (0.25)||Neutral (0.07)||Bullish (0.25)||Bullish (0.42)|
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