November 22, 2018 / 3:27 PM / 20 days ago

Professional buyers join Italian savers in shunning retail bond

MILAN, Nov 22 (Reuters) - Italian institutions on Thursday joined retail buyers in showing scant interest in an inflation-linked bond offered for sale by the government, raising questions about how it will meet its funding target next year.

Rome is hoping to persuade ordinary Italians to funnel more of their savings into public debt to counter falling foreign demand and the impact of the imminent conclusion of the European Central Bank’s bond-buying programme.

Tailored for retail buyers but also drawing strong interest from professionals, the BTP Italia bond offers a generous premium over the national inflation rate and an extra incentive to hold them to maturity.

But with Italy embroiled in a budget standoff with Brussels that has prompted investors to ditch Italian debt , it sold just 863 million euros ($985 million) of this week’s four-year linker to retail buyers and 1.30 billion to institutionals.

That was one of the poorest results since it introduced that class of debt at the height of the euro zone crisis in 2012.

“This deal confirms ... next year will be complex in terms of drumming up demand for Italian debt,” said Luca Cazzulani, deputy head of fixed income at UniCredit.

“The offer came at a time of high uncertainty and low visibility. People who bought the previous BTP Italia in May are suffering a loss of more than 10 percent. Caution was only to be expected.”

Small savers bought 4.1 billion euros and market professionals 3.65 billion of the May issue, which came before the anti-austerity and anti-EU coalition government took office, sparking a selloff in Italian bonds.

The price drop had prevented asset managers from reducing their holdings to make room for the latest bond, a Milan-based trader said.

Italy, whose debt pile of 130 percent of GDP is proportionally the second highest in the euro zone, is looking to sell 250-260 billion euros in bonds next year to refinance 200 billion euros in redemptions and fund the government’s cash deficit.

The Treasury sees room to boost retail holdings, which have fallen to 5 percent of the total as the ECB’s pledge to save the euro and its bond purchase programme, which ends in December, have driven down yields from the peaks of 2011-2012.

Italian households held almost a fifth of all Italian bonds back then.

Italy’s head of debt Davide Iacovoni has blamed market price swings in recent months for discouraging wealthier investors from buying the latest BTP Italia.

In a further deterrent the offer, which ran over four days, overlapped with Brussels’ decision on Wednesday to start disciplinary action against Italy over the budget. ($1 = 0.8766 euros) (Reporting by Valentina Za and Luca Trogni; editing by John Stonestreet)

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