(Bloomberg) -- Prime Minister Giorgia Meloni is counting on Italy’s citizens to help keep the country solvent, with the latest bond sale showing ordinary savers buying in.
Orders for the new BTP Piu 8-year bond reached €14.9 billion ($15.6 billion), the Treasury said on Friday. That’s broadly in line with the average of the last four sales.
Italy has been pushing ordinary savers to buy government securities as part of an overall sustainable fiscal policy. With debt as a percentage of gross domestic product above 130%, maintaining liquidity and manageable yields is a vital matter for the country.
The reasoning is that Italian citizens are less likely to sell off bonds than institutional or international investors.
Currently the yield spread between Italian bonds and German equivalents, a key measure of euro-area risk, has narrowed from over 150 basis points in June last year to fewer than 110 basis points now.
“Retail demand is a positive for Italy,” said Mohit Kumar, chief strategist at Jefferies International. “We remain positive on Italy but at these level of spreads see only limited room for compression.”
With the European Central Bank set to keep lowering rates in the months to come, the high demand for the current bond sale is a success for the government and Finance Minister Giancarlo Giorgetti.
“The results of this placement show that, even if demand from the sector sequentially slows down from elevated levels as yields decline, Italian households remain an important source of funding for the Treasury,” said Rohan Khanna, head of euro rates strategy at Barclays Plc.
He estimates debt issuance is now running seven percentage points ahead of the same point last year.
Solid demand for Italy’s savings products can ease the issuance of bonds aimed at institutional investors, meaning orders at retail sales are closely watched.
“The fact that households are willing to take on some duration risk is the kind of comfort non-residents need to continue holding BTPs at such a low spread to bunds,” said Benoit Gerard, a rates strategist at Natixis SA.
Successful bond sales are part of Meloni’s plan to keep Italy’s public finances in check. That’s a sentiment instilled from her time as a junior minister in the early 2010s in Silvio Berlusconi’s government, which collapsed over a spike in bond yields.
Italy’s borrowing requirements remain onerous, as the prime minister attempts to fund costly tax promises, rising defense spending and swelling pension costs.
The path ahead also is challenging, with the economy expanding just 0.5% last year, or 0.7% if adjusting for calendar effects, according to Bank of Italy data. That fell short of the government’s 1% forecast. For this year, the central bank expects growth of 0.8%
That will make it more difficult to manage spending needs and keep promises to the European Union aimed at lowering the deficit below the bloc’s 3% limit and reducing debt.
All this in turn contributes to Meloni’s desire to rely more on citizens, a strategy that is not new to Italy.
Her approach harks back to the 1980s and 1990s, when short-term bonds known as Buoni Ordinari del Tesoro became so popular that savers who bought them were termed “BOT people” — an expression that entered the dictionary and is still used today.
She still has a ways to go to reach those levels of debt in Italian hands but there has been progress. To ensure a constant flow of new loyal consumers, today’s BTP Piu bond, even pays extra yield to holders who keep them for more than 4 years.
--With assistance from Flavia Rotondi.
