By Silvia Marchetti
ROME (MaceNews) – Italy aims to issue a second round of US-dollar-denominated bonds by year-end with the goal of consolidating a stable and solid presence in the US market through a broad range of maturities, according to ruling coalition sources.
The financial markets are being monitored so the exact timing, size, and maturities are still under consideration and will depend on market conditions, the sources added. The plan to issue new dollar-denominated debt for institutional investors remains on track, the sources said, even though the COVID-19 emergency forced Italy in April to revise its earlier debt issuance plans and focus on the introduction of new retail bonds launched in July.
Italy aims to broaden its investor base and create a complete yield curve in US-dollar-denominated bonds across multiple maturities, the sources said. Breaking a nine-year absence from the US market, in October 2019 Italy made a comeback by raising a total USD7 billion from 5-, 10- and 30-year global bonds. Total demand was USD18 billion.
This year there could be issuance of at least one new maturity, said the sources, with the objective of building a USD yield curve alongside the euro-denominated yield curve, and enhancing liquidity in dollar-denominated debt trading. There could be more than one issuance by year-end, the sources said.
In the long term, issuance would focus on maturities that are most appealing to US investors with the aim of balancing Italy’s funding needs with US bond market requirements.
The COVID-19 pandemic has raised Italy’s funding needs and further increased public debt. Italy has the eurozone’s second highest debt-to-GDP ratio after Greece, with roughly EUR2.122 trillion in debt.
At the outbreak of the emergency, Rome raised its 2020 issuance target to EUR500 billion from EUR400 billion. Coalition sources said the figure could rise more by year-end if a second virus wave deals another blow to the economy and the government does not tap the European Stability Mechanism credit line which would grant Italy roughly EUR36 billion in loans for health spending.
Since the beginning of the virus crisis, Rome has spent roughly EUR100 billion to support the economy, which is expected to contract by 10% this year.
The spread between Italian BTP and German bunds rose to 240 basis points in April, at the height of the lockdown crisis, and spreads are now back to pre-COVID levels — 130-140 basis points.
Sources see market appetite for Italy debt thanks to the accommodative monetary policy of the European Central Bank (PEPP) and extra low-rates, including negative rates elsewhere in the eurozone.