By Silvia Marchetti
ROME (Mace News) – Italy’s government plans to issue even more U.S.-denominated bonds this year through regular, “predictable” placements aimed at boosting its role of frequent issuer, according to ruling coalition sources.
The goal is to keep diversifying the investors 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 U.S. market after 10 years of absence, all placements have been successful and we’ve gained confidence. So far these amount to a total USD 20 billion. We’d like to boost this connection and further consolidate our presence, build loyalty with investors operating on the U.S. market, including Asian ones who have demonstrated a great interest in our bonds”, said a source.
Another official expressed optimism that the program in U.S. dollars might act as “catalyst” in luring global investors towards Italy’s domestic bond market as well, for which authorities plan to issue this year more retail bonds to support the pandemic recovery.
Timing of new USD issuance has yet to be determined and will be subject to favorable market conditions, though sources suggested it is more likely that new placements will occur towards the second half of the year. This will allow to “test the ground” of 2022 global markets trends, particularly with regards to potential inflationary risks and pandemic uncertainty tied to the Omicron variant.
“Our goal is to complete and boost the liquidity of the USD yield curve by placing new, and perhaps even non-conventional maturities. All options are on the table: there could be multiple new maturities, single or multi-tranche, and the re-opening of existing securities. Our presence on the U.S. market will be stable”, said an official.
Italy will be monitoring the market to exploit the opportunities stemming from momentary misalignments of the euro and dollar curves to create a complete curve in U.S. dollar which is parallel to the maturity curve in euro.
The debt issuance strategy for 2022 will be “tailored”, focused on meeting demand from all potential investors, based also on their geographical location, through a diversified set of securities.
This year’s funding target is expected to be lower compared to 2021 thanks to direct EU aid and a brighter GDP outlook though still in the range of EUR 400-450 billion, above pre-pandemic levels, said the sources, as Italy grapples with a weak recovery and COVID uncertainty.
In 2021 funding needs rose to roughly EUR 500 billion.
Sources noted how the European Central Bank’s accommodative policy and lower rates have further lowered Italy’s borrowing costs and increased the average life of public debt to over 7 years, boosting its sustainability. This will favor the issuance of securities with significant long maturities, also given short-term uncertainty over inflation impact and global central banks response. 2022 started in fact with the placement of a 30-year Italian bond.
“We really need to look at the long-term scenario, volatility in the second part of 2021 is unlikely to disappear any time soon, especially with the Omicron variant hitting all countries, and monetary policy will become less accommodative at some point. Rates will eventually be raised”, argued an official.
Italy will also replicate in 2022 at least one issuance of more retail bonds dubbed ‘BTP Futura’ launched in 2020 to fund economic measures to tackle the COVID-19 pandemic, that are exclusively directed to the retail sector.
More placements of green bonds could also be taken into consideration following the last year’s first historical placement, used to fund environmental projects.
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Contact this reporter: silvia@macenews.com
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