Italian debt sees decrease in demand from households

Italy’s reliance on household debt for funding may be shifting as retail demand for sovereign bonds drops, signaling a potential need to turn to institutional investors. In a recent five-day sale, Italians purchased €11.3bn of BTP Valore bonds, significantly lower than previous offerings that raised €18.2bn, €17.2bn, and €18.3bn respectively.

Analysts suggest that Italy may need to increase reliance on institutional investors, especially after extending a tax relief scheme for private investment. Retail demand has been a crucial source of funding for Italy, with around €75bn sold directly to households since the beginning of last year.

The increase in Italian households’ sovereign bond holdings from €150bn to €335bn by late February highlights the significance of retail demand, now accounting for nearly 6% of Italian household savings.

Barclays projects Italy’s total bond issuance to reach €360bn this year, with sales net of redeeming bonds at €93bn. The slowing demand for BTP Valore bonds may prompt Italy to issue more to the wider market, potentially impacting the rally in Italian government bonds.

Hedge funds have been increasing bets against Italian bonds, with the total value of borrowed bonds rising to €50.7bn. Despite lower-than-expected demand for the recent BTP Valore offering, an Italian finance ministry spokesperson expressed satisfaction, noting that officials never anticipated matching the uptake of previous issues.

The Bank of Italy’s financial stability report highlighted the importance of retail demand for Italy’s debt, emphasizing the need for a balanced approach to funding sources. Analysts remain cautiously optimistic about Italy’s BTP issuance plans, citing some flexibility in the ministry’s funding range.