By Silvia Marchetti
ROME (MaceNews) – Italy’s third quarter issuance plan will focus mostly on short-term and inflation-indexed debt securities to shield domestic investors from inflation, according to ruling coalition sources.
“The Ukraine war fallout is heavily striking families’ purchasing power, who remain our key investor target. The domestic market is extremely vulnerable at the moment, and inflation-indexed bonds, particularly short and medium issuances, are safer now than those at fixed rate, and also less risky, and with a lower debt cost, for the state,” said an official.
The government’s recently updated issuance plan for the remainder of this year, based on funding target, amounts to EUR 150 billion. A new 5-year bond issuance is scheduled for the third quarter, for a minimum funding target of EUR 10 billion.
Sources said there could also be reopening in the third quarter of already-placed 2-year, 3-year, 7-year bonds, more inflation-indexed securities and potentially, even bonds with a 10-year maturity and beyond, depending on market conditions. CCTeus, which are floating rate securities with maturity from 3 to 7 years, and indexed to 6-month Euribor rate (average EU interbank lending rate), could also be issued.
“Inflation in Italy is at 6.8 percent, the highest in 30 years, and since January all bonds tied to the rising cost of living have shielded investors and contributed to guaranteeing the sustainability of our public debt, amounting to EUR 2,700 billion, roughly 150 percent of GDP,” said a Democrat source.
Last week Italy successfully placed a 8-year inflation-linked bond raising EUR 9.5 billion that mostly appealed to domestic investors, with retail buying over 65 percent, more than the private banking sector. Overall, domestic placement was 84 percent, while just a small amount was subscribed by French, UK, and German investors.
Italy is nearly halfway toward reaching its yearly issuance target, expected to be lower than last year’s EUR 400 billion, with sources noting how it was running according to schedule, in spite of the Russian-Ukrainian war and its repercussions on spread levels and inflation.
In the first 5 months of this year, gross issuance of medium-long term bonds totaled EUR 123,5 billiion – of which EUR 90 billion is to refinance maturing securities – and EUR 36 billion to meet new government borrowing needs. Italy’s average debt life has slightly dropped from 8 to 7 years.
Sources stressed how the first slice of EUR 11 billion in European Union direct pandemic aid had also just landed, and that a second tranche is expected over the next few months, thereby contributing to easing issuance pressure.
For the remainder of the year, funding will focus on paying for maturing securities worth €145 billion, plus borrowing requirements which still needed to be accounted for.
Coalition sources hope that a stronger economic performance in the second quarter of this year will contribute to raising Italy’s average growth for 2022 to 3.1% and potentially even more, likely higher than previous government forecasts.
But the officials warned that the months ahead will be tougher due to the European Central Bank’s announced rate hike and volatile, rising spread levels.
“It’s quite clear that even though inflation is expected to slow down over the next six months it is bound to remain vulnerable to new, sudden energy spikes,” said a 5 Stars source.
“The economy is tentatively improving, investments are picking up again but energy spikes have eaten up Italy’s trade surplus after eight straight years of record high, and this isn’t helpful,” said an official, adding that energy imports remained the major burden.