Italy 4-Year Retail Bonds Draw 7.3 Billion Euros in Sale

Italy sold 7.29 billion euros ($9.6 billion) of a new four-year bond to retail investors, a result that Deputy Finance Minister Vittorio Grilli said showed renewed confidence in the nation’s debt.

The inflation-linked securities were on sale from March 19 through today for purchase through banks, including on the Internet, with a minimum order of 1,000 euros. The bond carries an annual coupon of 2.45 percent to be paid on a semi-annual basis, according to an e-mailed statement from the Rome-based Treasury, which confirmed the final sale figures.

“It has been a good success as our households and investors welcomed the new product,” Grilli told reporters in Rome today. The sale “shows a normalization of our market with investors becoming confident again about our public debt.”

The policies of Prime Minister Mario Monti, who replaced Silvio Berlusconi in November, coupled with the European Central Bank’s (EURR002W) unlimited three-year loans to banks, helped prompt eight weeks of gains by Italian bonds, the longest rally since the start of the euro. Italy has the region’s second-biggest debt at 1.9 trillion euros. About half is held by domestic investors, one of the highest rates in Europe.

The yield on Italy’s 10-year bond surged in November above the 7 percent threshold that prompted Greece, Ireland and Portugal to seek bailouts. That yield was 5.1 percent today, up 24 basis points since the start of the week.

“Our country has a significant growth potential and ability to repay public debt,” Grilli said. “We have reassured and still need to reassure markets about our ability to repay our debt.”

‘Right Things’

Italy has done the “right things” to tame its public finances and will have a primary surplus of more than 5 percent of gross domestic product next year, Lorenzo Codogno, a director general of the Italian Finance Ministry, said today.

Still, Italy remains the euro-area country most under scrutiny by policy makers as its financing needs are larger than the support available from Europe’s crisis-fighting resources, Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, said today at the Sovereign Debt Conference hosted by Bloomberg Link in Frankfurt.

The new bonds will pay a minimum coupon of 2.25 percent above a special inflation rate for working class Italians known as the FOI. Investors who hold the debt to maturity in 2016 will get a bonus of 0.4 percent. The principal is guaranteed even in the case of deflation and investors don’t pay purchase fees.

The Treasury will probably offer the securities on a quarterly basis with the next sale coming just before summer, Maria Cannata, head of Italy’s debt agency, said on March 19.

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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