Italy Aims to Boost Share of Debt Held by Domestic Retail Investors, Keeps Dollar Debt Issuance on Hold, Government Sources Say

By Silvia Marchetti

ROME (MaceNews) – Italy’s nationalist government plans to increase the share of public debt held by domestic retail investors as it looks to offset fading European Central Bank purchases and as dollar-denominated debt issuance remains on hold, according to ruling coalition sources.

“The goal is to nationalize as much as possible our debt by reducing the dependence on foreign creditors and increasing the number of Italian citizens and residents who own our issuances,” said an official.

The official said the 2023 issuance plan aims to expand direct participation by domestic retail buyers in public debt, including through new instruments, alongside the usual inflation-indexed BTP Italia bonds.

Two weeks ago, nearly EUR 10 billion worth BTP Italia inflation indexed securities were issued, with retail buying 86% of the offering, up 26 percentage points from a similar placement in November. This rise in retail is encouraging the government to move on with more retail issuances this year and to focus less on issuance in foreign currency.

“We’re still very much interested in more USD-denominated bonds to strengthen our position on the US market but at the moment the conditions aren’t quite favorable so we will wait and see,” said another official.

The retail bonds are seen by Rome’s cabinet as a ‘shield’ against the consequences of the European Central Bank unwinding its accommodative policy, with officials arguing that Italy will need new, “reliable” investors to sell debt to the ECB phases out it asset purchases program.

The retail sector is key, explains a source, for Italy is already one of the countries in the world with the largest domestic share of public debt. In October 2022 out of a total EUR 2.3 trillion debt, the volume held by non-residents was barely EUR 635 billion, 27%.

“All we need to do is push forward in this nationalization campaign, there’s always been great appetite among Italians for retail bonds but now, with all the geopolitical tensions and market instability going on, Italians are even more confident in giving their savings to the state,” said an official.

Coming months  provide good timing for more retail bond issuance as the ECB’s bond purchases will fall while spread levels seem to be momentarily under control.

“The central bank currently holds about a third of the entire Italian debt. It is estimated that the lack of renewals in the ECB’s purchases programs will weigh for Italy alone, in 2023, for EUR 10 billion,” said an official.

Another positive aspect is that differential in yields between Italian and German bonds has recently dropped thanks to a rosier economic outlook, argued an official, with the Italian economy expected to grow by 3.5 % this year, above previous forecasts, which should boost domestic investors’ confidence. 

The opposition has voiced concern about a “risky campaign for the Italianization of public debt.”

“Japan launched a similar quite controversial debt nationalization plan a few years ago but as opposed to Italy, Japanese debt is more sustainable even if higher, at 262%, with 90% held by domestic investors, noted a Democrat deputy.

“Moreover, it is against European legislation to distinguish between residents and non-resident investors, so the government must carefully weigh its next moves,” warned the Democrat.

Italy Keeps Dollar Debt Issuance on Hold; Aims to Boost Share of Debt Held by Domestic Retail Investors, Government Sources Say

By Silvia Marchetti

ROME (MaceNews) – Italy plans to increase the share of public debt held by domestic retail investors as dollar-denominated debt issuance remains on hold, according to ruling coalition sources.

“The goal is to nationalize as much as possible our debt by reducing the dependence on foreign creditors and increasing the number of Italian citizens and residents who own our issuances,” said an official.

The official said the 2023 issuance plan aims to expanding direct participation by domestic retail buyers in public debt, including through new instruments, alongside the usual inflation-indexed BtP Italia bonds.

Two weeks ago, nearly EUR 10 billion worth BtP Italia inflation indexed securities were issued, with retail buying 86% of the offering, up 26 percentage points from a similar placement in November. This rise in retail is encouraging the government to move on with more retail issuances this year and to focus less on issuance in foreign currency.

“We’re still very much interested in more USD-denominated bonds to strengthen our position on the US market but at the moment the conditions aren’t quite favorable so we will wait and see,” said another official.

The retail bonds are seen by Rome’s cabinet as a ‘shield’ against the consequences of the European Central Bank unwinding its accommodative policy, with officials arguing that Italy will need new, “reliable” investors to sell debt to the ECB phases out it asset purchases program.

The retail sector is key, explains a source, for Italy is already one of the countries in the world with the largest domestic share of public debt. In October 2022 out of a total EUR 2.3 trillion debt, the volume held by non-residents was barely EUR 635 billion, 27%.

“All we need to do is push forward in this nationalization campaign, there’s always been great appetite among Italians for retail bonds but now, with all the geopolitical tensions and market instability going on, Italians are even more confident in giving their savings to the state,” said an official.

Coming months  provide good timing for more retail bond issuance as the ECB’s bond purchases will fall while spread levels seem to be momentarily under control.

“The central bank currently holds about a third of the entire Italian debt. It is estimated that the lack of renewals in the ECB’s purchases programs will weigh for Italy alone, in 2023, for EUR 10 billion,” said an official.

Another positive aspect is that differential in yields between Italian and German bonds has recently dropped thanks to a rosier economic outlook, argued an official, with the Italian economy expected to grow by 3.5 % this year, above previous forecasts, which should boost domestic investors’ confidence. 

The opposition has voiced concern about a “risky campaign for the Italianization of public debt.”

“Japan launched a similar quite controversial debt nationalization plan a few years ago but as opposed to Italy, Japanese debt is more sustainable even if higher, at 262%, with 90% held by domestic investors, noted a Democrat deputy.

“Moreover, it is against European legislation to distinguish between residents and non-resident investors, so the government must carefully weigh its next moves,” warned the Democrat.

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