Foreign Buyers Increasingly Return to Italian Debt, Cannata Says

Foreign investors are increasingly returning to Italian debt, and some of them are diversifying their holdings, debt agency chief Maria Cannata said.

Purchasers from non-euro area countries such as the U.K. and Scandinavian nations are “important,” in addition to the “very strong” presence of U.S. investors, Cannata said in an interview in her office in Rome yesterday. Asian buyers, whose purchases were “quite limited in terms of maturity until the end of 2013” have started to broaden their horizon in investments and diversify the type of bonds this year, she said. Cannata said Japanese purchases of Italian debt have increased but are still “quite limited.”

Italy returned to economic growth at the end of 2013, breaking a slump that lasted more than two years. Prime Minister Matteo Renzi is counting on more foreign investors to sustain the growth.

Non-resident holdings of Italian government securities increased by almost 30 billion euros ($41.5 billion) in January, the latest month for which figures are available, according to the Bank of Italy.

Orders for a new six-year inflation-linked bond aimed at retail investors topped 6.7 billion euros yesterday, in a sign that demand from average Italians is also solid. The sale, which will run through April 17, is the sixth of its kind since 2012, when the government began reaching out to 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.

Longer Term

The calm in bond markets in recent months may also allow the Treasury to sell more longer-term securities to slow down the decline in the average life of its debt, which was 6.32 years at the end of last month. The Treasury expects it to be more than 6.5 years by the end of 2014.

Italy will probably sell a 15-year bond via syndication and remains open to selling longer-maturity securities through private placements, even if there’s not enough demand for a benchmark now, Cannata said in the Bloomberg Television interview.

Asked about private placements, the director general of Italy’s debt agency said the Treasury is open to longer maturities even if it doesn’t see enough demand to justify a benchmark.

Treasury regularly alternates “between 30- and 15-year in auctions,” said Cannata. “We are open to longer maturities in private placement format as we did in 2013.”

Italy sold a 30-year linker via private placement earlier this year, Cannata said.

Trading Volumes

Trading volumes in Italy’s bond market can keep rising, Cannata said. The daily volume of Italian debt traded on the secondary market last month was almost double the 2013 average. Turnover averaged 6.56 billion euros in March, up from an average of 3.57 billion euros last year, the nation’s Treasury said in a quarterly report published on its website this month.

“The secondary market has really normalized now,” according to the debt agency chief. “There is a good appetite for Italian bonds and this is a virtuous circle because investors appreciate to have a liquid market.”

The bonds of Europe’s higher-yielding nations have surged this year amid speculation the European Central Bank will act to boost the region’s economy. It’s better not to consider the debt crisis “fully over,” while it appears “the worst has passed,” according to Cannata.

Low inflation doesn’t seem to be a problem for Italy’s debt management, Italy’s debt agency chief said, also recalling the successful sale via banks of a 10-year linker earlier this year that drew more than 11 billion euros in orders. Euro-area inflation slowed to 0.5 percent in March, the lowest level since November 2009.

BTP Italia

Italy will have its first chance to close the retail placement stage today, provided it communicates its intention by 1 p.m. local time. April 17 will be dedicated to institutional investors, from whom Cannata expects ’’a large demand.’’

Cannata declined to give a target for the sale, while saying the Treasury would like to avoid record sales like the one in November that with 22.3 billion euros turned out to be the single biggest-ever by a European government. Italy raised more than 66 billion euros in the previous five sales.

Last week the Treasury raised its gross funding target for this year by 20 billion euros to 470 billion euros after Renzi’s pledge to repay more arrears to companies in 2014. The difference is “manageable” and won’t create pressure on government bonds as the market is very positive, Cannata said. Italy has met 33.6 percent of its financing needs for this year and the average yield in the first three months was 1.62 percent, she said.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE