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Exclusive: Italy doubles down on debt sales to retail investors

ROME (Reuters) - Italy will launch a campaign this month to entice individual investors to buy its government debt and shift some of the burden of funding the fight against the coronavirus from its banks, which are still recovering from the last crisis.

FILE PHOTO: Nicola Contaldi walks to deliver a lunchbox at Palazzo Chigi as home deliveries are the only option to keep restaurants' business running as the lockdown to prevent the spread of the coronavirus disease (COVID-19) continues in Rome, Italy, April 20, 2020. REUTERS/Guglielmo Mangiapane

Italy is set to borrow half a trillion euros this year to help weather the pandemic and the Treasury is aiming to gradually double the amount of Italian sovereign bonds held by small retail investors.

“We have about 80 billion euros ($86 billion) of bonds in the hands of our retail investors, which is very little, and we believe we can double it to 160 billion within a few years,” the Treasury’s debt management chief Davide Iacovoni told Reuters.

He said banks were extending their opening hours and allowing orders from retail investors for a new five-year inflation-linked bond on sale next week to be placed by email and telephone due to lockdown restrictions.

Iacovoni said he expected a positive response from both savers and institutional investors to the new BTP Italia, which is due to be sold between May 18 and May 21.

“We are reasonably optimistic about the outcome of the placement, we are seeing good interest,” Iacovoni said.

Italy’s banks, which have played a key role in supporting government funding in the past, are limiting their exposure to domestic debt due to pressure from regulators and investors.

Banks are trying to avoid the kind of “doom loop” seen during the euro zone debt crisis when concerns about Italy’s creditworthiness coloured investors’ views of the banks and vice versa, amplifying market tensions.

Foreign investors have also cut their holdings of Italian debt to about 30% of outstanding bonds since the financial crisis. By comparison, more than 40% of German, French and Spanish debt is in foreign hands, according to Eurostat data.

That’s why the Treasury, which manages one of the world’s biggest debt piles worth more than 2.4 trillion euros, is keen to widen its funding sources, Iacovoni said, adding that Italian banks would still play a key role in placing and holding debt.


It was not immediately clear how much appetite there would be from retail investors for government bonds. In 2009, they held 13% of Italian sovereign debt but that has slumped to 3% as the fallout from the financial crisis hammered bond holders.

With fewer customers visiting banks due to lockdown restrictions, Iacovoni said lenders had used emails and codified telephone calls to generate and respond to interest from clients in the new BTP Italia issue.

A source told Reuters last week that the inflation-linked bond issue could raise up to 16 billion euros.

Buying government bonds would leave retail investors exposed every time concerns about the government’s spending plans or political stability spark a sell-off in Italy’s debt.

As the coronavirus panic gripped markets in March, Italian bond markets bore the brunt of the jitters in Europe. On March 18, the gap between Italian and German 10-year bond yields blew out to almost 320 basis points and concerns about the outlook for Italy’s economy and its high debt levels remain.

With Italy’s debt heading towards 155.7% of national output this year, according to the Treasury’s latest estimate, some analysts are questioning whether it will be sustainable without support from the European Central Bank.

Iacovoni dismissed such doubts, saying “the fundamental structure of Italy’s public finances is fully under control”.

Total issuance this year will amount to about 500 billion euros, he said, well above the 400 billion to 410 billion announced in early February, before the COVID-19 pandemic brought Italy’s economy to virtual standstill.

Iacovoni said Italy was still working on a plan floated last year to issue its first green bond but more stable market conditions were needed to proceed.

“It would be desirable to bring a first issue this year,” Iacovoni said.

Reporting by Giuseppe Fonte; Editing by Gavin Jones and David Clarke