Italy Issues Record $30 Billion Retail Bonds in Two-Day Sale

Italy sold 22.3 billion euros ($30 billion) of government inflation-linked bonds aimed at retail investors, setting a record and allowing the Treasury to potentially cut the size of debt auctions for the rest of the year.

The government, which initially planned to take orders through Nov. 8, said yesterday it would close the books early because of strong demand. Orders reached 16.8 billion euros yesterday, almost double the amount sold on the first day of the previous sale in April. The Treasury received orders for another 5.4 billion euros today.

The debt sale is the single biggest-ever by a European government after the 18 billion euros secured by Italy over four days in October last year. The four-year bond, dubbed BTP Italia, carries a 2.15 percent coupon that proved attractive to buyers even amid weak consumer prices.

“As a result of today’s large placement, we expect smaller than average auctions in mid November and end of November, and the cancellation of the mid-December BTP auction,” Chiara Cremonesi, a fixed-income analyst at Unicredit SpA in London, wrote in a note to clients. “The decline in supply pressure will be a supportive factor for Italian yields until year-end.”

Diversify Funding

The Treasury last year began trying to get Italians, who are among the biggest savers in Europe, to help manage its 2 trillion-euro public debt as contagion from the debt crisis triggered an exodus of foreign investors. In the previous four sales of the BTP Italia since March 2012, Italy has raised more than 44 billion euros.

“Currently very low Italian inflation is not perceived to be anything more than transient,” Marc Ostwald, a rates strategist at Monument Securities Ltd. in London, said by e-mail. It also shows that “domestic retail investors do not see any medium-term risk of default and perhaps that retail investors trust their money more with the government than with local banks.”

Italy had raised about 90 percent of its 470 billion-euro issuance target for this year before the BTP Italia sale, according to the Treasury. Italy will give details of demand for the four-year bond tomorrow.

“This has proven a very popular instrument and is a very good way of funding,” Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan, said by phone. “From the success gathered in the market, Italy should do more lines next year.”

Italian 10-year yield rose 2 basis points to 4.2 percent at 5:25 p.m. in Rome, pushing the spread over comparable German bunds to 244.6 basis points.

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