Italy plans to offer guarantees on govt bond derivatives

ROME Mon Oct 21, 2013 7:24am EDT

ROME Oct 21 (Reuters) - The Italian Treasury plans to introduce a system of bilateral guarantees for derivative contracts over domestic government bonds signed with national and foreign banks to help lenders manage risks and facilitate its debt sales.

Under the planned system, outlined in a draft law seen by Reuters, the Treasury and the banks will exchange cash sums on a short-term basis depending on the mark-to-market of their respective derivatives positions.

A Treasury official told Reuters the new system would help Italy issue debt denominated in currencies other than euros.

Such issues require hedging against currency risks through derivatives contracts and this would be too expensive without the collateral guarantees, the official said.

The sums held as guarantees will bear interest at money-market rates.