Italy raises record €22bn in bond sale as sentiment brightens

Italy has raised a record €22bn for a debt sale aimed at ordinary savers, underscoring how central bank stimulus and a potential EU recovery fund have bolstered investor confidence.

The Italian Treasury said on Thursday that it had raised a record €22.3bn for a five-year “BTP Italia” inflation-linked bond that was being marketed this week. Slightly less than €14bn was bought by retail investors, with €8.3bn purchased by institutional investors.

The strong demand highlights how market sentiment has been improved by the recent €750bn increase to the European Central Bank’s bond-buying programme and, in particular, the plan announced on Monday for Germany and France to join forces to forge a €500bn Covid-19 recovery fund, backed by bond issuance by the European Commission.

The proceeds of Italy’s latest bond sale are intended for spending on measures to shield Italy’s economy from the impact of the pandemic. The bonds offer an annual coupon of 1.4 per cent.

Ordinary investors had a three-day window to subscribe before the offer was extended on Thursday to include institutions such as pension funds and insurers.

“Unlike previous deals [by Italy], orders rose day by day. The reception from retail investors is a very positive signal for the market,” said analysts at UniCredit, one of the underwriters on the deal.

About 50 per cent of institutional investors were from overseas, according to a banker involved in the deal.

Italy has one of the world’s largest piles of public debt, relative to gross domestic product, and the government is expecting it to rise sharply this year as it responds to the coronavirus crisis. Total borrowings are expected to rise to about 155 per cent of gross domestic product this year, according to credit rating agency Fitch, from 134 per cent last year.

A decision by Fitch in late April to cut Italy’s credit rating to one notch above junk status added to investors’ unease over the country’s public finances.

BTP Italia bonds were first issued in the eurozone debt crisis in 2012 as international investors fled Italy’s bond market and the government turned to domestic savers to fill the gap.

They have since become a regular fixture, with new issues about every six months. The last issue, in October, raised €6.8bn. “Not many other countries in Europe could do something like this,” said a banker involved in the transaction.

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Data from the Bank of Italy on Wednesday showed that foreign investors had cut their holdings of Italian government bonds by €51.5bn in March, the heaviest monthly outflow since 2002, according to UniCredit.

The yield on the 10-year Italian government bond eased from 1.85 per cent to 1.61 per cent this week after France and Germany announced plans for a €500bn package for EU countries struggling with coronavirus. Investors are now awaiting more details on the proposed structure, and on which nations will back it.

Banca IMI, BNP Paribas, UniCredit and Monte dei Paschi di Siena were the bookrunners for the BTP Italia bond.

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