By Silvia Marchetti
ROME (MaceNews) – Italy’s government plans to issue two more US dollar-denominated bonds in the second half of this year likely with medium-term maturities which would extend average debt maturities and consolidate Italy’s role as a frequent issuer on the US market, said ruling coalition sources.
“Our plan, since we returned to the US market in 2019 after 10 years of absence, has always been to complete the yield curve in USD so to make it parallel to the one in euros, and we will likely achieve this goal in 2022,” said an official.
Apart from the additional dollar debt, Italy plans to stick to its announced issuance schedule for 2022 despite market turmoil due to the Russian-Ukrainian war and rising inflation, and with the European Central Bank expected to winding down its asset purchase program, sources said.
Having scheduled more US-denominated bonds placements in the second semester of this year allows authorities to “buy time, test the ground and measure market appetite” for longer-term bonds, in the hope that the Ukrainian-Russian tensions would have abated by then.
“Given recent successful placements, our issuance strategy is focusing a lot on medium-long term maturities and we will be placing during this quarter three new Italian bonds (on the Italian market), two of which, with a 7- and a 10-year maturity, that could appeal to the retail sector and to families looking to invest the money they spared during the pandemic,” said another source.
Even though proceeds resulting from bond placements normally go into funding current spending, governing allies are discussing whether to further raise deficit spending to fund more pro-growth measures and further reduce electricity costs for households and firms.
The two new US-denominated issuances could be medium-term bonds, possibly one with a 20-year maturity and another with a 4-year one.
“If we look at the bonds already placed on the US market since 2019, we have a total of 7 bonds with different maturities that reflect the existing maturities of Italian bonds issued in euros, leaving out just these two new maturities to complete the yield curve and have two parallel curves in USD and euros,” explained a source.
The precise timing of these new USD issuances has yet to be determined and will be subject to favorable market conditions, and to potential fluctuations in the exchange rate which would however be mitigated by SWAP operations.
The goal is to keep diversifying the investor base through new issuances in foreign currencies both in the Global and EMTN (Euro Medium Term Notes) formats, with the dollar operation having now become the cornerstone of Italy’s foreign-oriented strategy.
“Since 2019, when Italy made a comeback on the US market after 10 years of absence, all placements have been successful. So far we’ve raised total USD 20 billion, and we see that there is growing appetite in the US for Italian bonds, particularly among Asian investors operating there”.
Once the USD yield curve is completed and liquidity levels are significantly raised, Italy could still keep consolidated its role of frequent issuer by placing more single or multi-tranche maturities, and by re-opening existing securities.
“Our presence on the US market will be stable, there’s no turning back”, said an official.
Italy will be monitoring the market to exploit the opportunities stemming from momentary misalignments of the euro and dollar curves, with sources noting that now would not be, in any case, the best moment to place the new USD-denominated bonds given that one USD could soon equal one euro.