Written by Sarah Rossi
MILAN (Reuters) – Elisabetta Trevisan, a 50-year-old teacher from Venice, plans to use interest payments from Italian government bonds meant for small savers to help pay for her two sons to go to university.
The three bonds she bought for 40,000 euros ($43,100) carry annual coupons of up to 4.5%, a healthier appreciation than other savings options, and payments are made every three or six months. It is done.
“If my bank account had an annual interest rate of 0.001%, I would have made a profit of 4 cents!” Trevisan told Reuters.
Mr. Trevisan plans to sell part of Rome’s 2.4 trillion euro public debt in 2023, attracted by attractive returns and concerned that hyperinflation will erode the value of cash. He was one of the thousands of ordinary Italians who bought it.
The government, which manages a debt-to-GDP ratio of around 140%, the second-highest in the eurozone, recognizes that small savers are less likely to withdraw funds in a potential crisis and confidence in Roma Debt And I rode that wave. Encourage foreign investors.
The campaign was successful, with the share of BTP or Buoni del Tesoro Polienari (medium- and long-term government bonds) held by domestic private buyers rising from 6% in mid-2022 to 13.5% by October, the highest since 2014. The central bank announced that it had reached its highest level. Data from Italy showed that.
But analysts warn that the trend could lose some momentum this year, weakening a key pillar of the Treasury’s strategy to find a buyer for one of the world’s largest piles of public debt. There is.
The main reason for this, they say, is that the prospect of European Central Bank interest rate cuts is likely to make Italian bond yields less attractive for small savers.
At the same time, banks, which have struggled to compete with the state for customers’ cash, may reward deposits more generously through higher interest rates, rather than letting customers continue to drain their funds by buying BTP.
“After 2023, when demand from retail investors was very high, it is unlikely that we will repeat last year’s strong performance,” said Luca Casulani, head of strategic research at UniCredit.
He expects retail investors in the euro zone’s third-largest economy will likely take on 30 billion to 40 billion euros of government debt in 2024, a significant amount compared to European countries, but less than last year. This is significantly less than 100 billion euros.
Filippo Mormando, a strategist at Spanish bank BBVA, predicted retail purchases would be at least 70 billion euros this year.
“Given last year’s record demand, it would not be surprising or concerning if there is a modest decline in 2024,” said a source familiar with debt management.
Italian exception
In absolute terms, retail investors, or non-professionals, held around 320 billion euros in Italian government bonds by October last year, the highest level since the euro was founded 25 years ago. Approximately 270 billion yen of this amount is held by individual savers.
Households in other euro area countries play a much smaller role in sovereign debt markets.
Citing third-quarter ECB data, Kazrani said that in Belgium, the share of private investors in the country’s debt has recently risen to around 5%, while in Germany and France it is close to zero.
The finance ministry said it had a “historically good relationship with small savers” as Italy has a huge debt to manage.
Since the height of the eurozone debt crisis in 2012, the Ministry of Economy has introduced several types of bonds specifically aimed at retail investors. Last year, these investments attracted a total of approximately 44 billion euros.
Last week, during the popular Sanremo music festival, Rome aired an advertisement for a six-year bond to be issued to retail investors at the end of this month.
Retail bond investors typically have modest assets and a fairly low risk appetite.
“They don’t have a lot of money,” said Barbara Puskiasis, vice president of the national consumer group Consumerismo. We need possibilities.”
Small savers are attracted by the low tax rate of 12.5% on income from Italian government bonds, half that of other financial assets.
Additionally, this year’s budget law allows the country to receive up to €50,000 worth of national debt from the ISEE, the wealth index used to assess eligibility for welfare benefits.
Stimulating foreign investors
The dedication of ordinary Italians also reassures foreign investors. If domestic savers trust Rome enough to buy large amounts of Rome’s government bonds, foreigners following the country from afar need not be so nervous.
“Strong demand from small savers is likely to have boosted confidence among foreign investors, who will become the second-largest buyers in 2023 with net purchases of around 40 billion euros,” UniCredit’s Casrani said. ” he said.
Before the 2008 financial crisis shattered investor confidence, the proportion of Italian government debt in the hands of domestic savers reached 20%, according to Roberto Rossignoli, a portfolio manager at Moneyfirm. It was an achievable level.
BBVA’s Mormando said continued strong purchases of BTP by retail investors could lead to a further narrowing of the gap between Italian and German government bond yields, an important measure of investor confidence in highly indebted Italy. He said that there is a sex.
The spread between BTP and German government bonds narrowed to 150 basis points, the lowest level in nearly two years.
(1 dollar = 0.9308 euro)
(Reporting by Sarah Rossi; Editing by Mark John and Toby Chopra)