By Silvia Marchetti
ROME (MaceNews) – Italian business lobbies and Democrat opposition forces voiced concern over foreign investors avoiding Italian bonds, though this is increasingly being counterbalanced by a rise in retail-only securities which is shielding Italy’s soaring public debt.
“The Italian debt in the portfolio of foreign investors dropped from EUR 685 billion in 2021 to EUR 658 billion in 2023, with the share falling from 30.7% to 27.3%,” said Giuseppe Spadafora, head of top business lobby Unimpresa.
From 2022 to end of 2023, the share of debt held by Italian small investors rose from 8% to 13.7%, according to data issued by Unimpresa.
The rightist government of Giorgia Meloni has launched a crusade to ‘nationalize’ Italy’s outstanding public debt with an ambitious issuance program focused on domestic retail, “but foreign investors fleeing from our financial market is not a good sign,” warned a Democrat deputy.
“Meloni may not like it, but we heavily rely on foreign subscribers to keep financing our public debt and meet our borrowing requirements. The share of bonds held by foreign-based buyers stands at 25%, we must not let that drop further,” said the Democrat source.
Another Democrat official argued that Meloni should diversify the investor base rather than focus too much on the domestic market.
There recently has been a strong demand for retail-only bonds. Last week Italy issued EUR 18 billion worth of ‘BTP Valore’ (special ‘value’ bonds reserved to retail), which was Meloni’s third placement of such securities since last year.
Italy issued EUR 18 billion in the first BTP Valore tranche in June 2023, then another EUR 17 billion in the second BTP Valore issuance in October 2023.
A government official hailed the “retail-crusade as the best, safest way to shield Italy’s soaring public debt.”
Gianluca Verzelli, deputy general manager of Milan-based Akros Bank, the investment branch of Banca Popolare Milano that partly handled the ‘BTP Valore’ issuance on behalf of the government, said the positive signal from the retail sector was a response to the end of the zero-rate era.
“One year ago, Italian investors had no appetite for similar bonds, yielding practically nothing. Today, they yield 3.45% at a one-year maturity, making these very appealing to retail,”, said Verzelli. Meanwhile, recently issued BTP Valore bonds with a 6-year maturity have risen to 4% after four years.
“Retail-only bonds stand as a shield against inflation,” he added, as rising prices have dealt a heavy blow to Italian households.
Instead of keeping their savings frozen in bank accounts, even if small amounts of just EUR 20.000, investing this money in “friendly bonds” is a good way to avoid the erosion of purchasing power due to inflation, he added.
Verzelli argued that Italy’s state was “well-rewarding” Italian retail investors, incentivizing them to further purchase Italian debt, much more than France and Spain.
In his view, the drop in foreign investors is nothing to worry about, at least not in the short run.
“Country-specific risks are still quite low for Italy, no matter the political colors of who rules the country. Though Italian bonds risk remains higher than that of German bunds, institutional investors know that our public debt is solid and sustainable, and that Italy has the capacity of repaying it,” said Verzelli.
However, in his view, the real issue is not what kind of investors support Italy’s funding needs, but how sustainable such debt will be in the long run.
Verzelli said that as long the European Central Bank kept buying and holding Italian debt, and the European Commission shielded the euro zone with targeted investment programs, there was no risk in the sustainability of Italian debt.
Both government and opposition forces, however, stressed that Italy was in a better position today to weather the impact of higher interest rates and ECB’s quantitative tightening, whenever that will happen.
“Our debt will always be sustainable. Even in its worst moments in history, like during the sovereign debt crisis, Italy never ended up in default like Greece. Our bonds were never junk. We have always had, and will always have the capacity of paying back our debt, that is what the term ‘sustainable’ means,” said the Democrat source.