Moody’s upgraded four Italian covered bonds on Friday after raising the Timely Payment Indicator (TPI) for all public sector-backed and almost all mortgage-backed OBG programmes from “improbable” to “probable”. An analyst suggested Portugal could be next in line for a similar boost.

The revised TPIs reflect a stabilisation of Italy’s economy – which resulted in Moody’s changing the outlook on the country’s government bonds, rated Baa2, from negative to stable – as well as improved funding conditions for banks, a high level of overcollateralisation maintained by Italian issuers, and the stable credit quality of cover pools.

The decision by the rating agency to raise Italian TPIs and its rationale mirrors recent TPI upgrades by Moody’s of covered bond programmes in Ireland and Spain, noted covered bond analysts.

“I guess Moody’s just wanted to wait for the stable outlook on the sovereign rating before acting on the OBGs,” said one.

The analysts felt that other peripheral countries could also benefit from a TPI upgrade in the near future.

“Most of the points mentioned by Moody’s on the Italians is equally applicable to Portugal,” said an analyst. “Pool quality has remained very stable throughout the crisis and banks have very broad access to wholesale funding.

“So if you ask me, the agency is merely waiting for the country to exit its support programme and will then improve TPIs as well.”

As a result of the TPI lift, the rating agency has upgraded covered bonds issued by Banca Popolare dell’Emilia Romagna and OBGs issued under the residential mortgage covered bond programme of Banco Popolare from Baa2 to Baa1. It also upgraded commercial mortgage-backed covered bonds issued by Banco Popolare, from Baa3 to Baa2, and public sector-backed covered bonds issued by Intesa Sanpaolo from A3 to A2.

However, Moody’s maintained at “probable-high” the TPI assigned to a Banca Carige commercial mortgage-backed OBG programme (programme 2), noting that this already reflects the limited level of refinancing risk in the programme.