Foreign Investors Return to Italian Bond Market as the Country’s Risk Premium Reduces Further from Last Year’s Highs
Italy is attracting foreign investors to buy its bonds as the new government’s more conciliatory stance toward the European Union on budget issues should reduce the country’s risk premium further, the head of the country’s debt agency said in an interview.
Speaking at a Bloomberg conference in Milan, Davide Iacovoni said the nation “is no longer under the radar of international investors as a potential source of risk like last year,” when the previous administration clashed with the EU over populist election promises and faced the threat of penalties.
“There’s been a strong recovery in foreign investors’ holdings of Italy’s stock of debt since January, and with July data we’re now back to end-of-2017 levels,” Iacovoni said. The share of foreign holders of Italy’s debt rose to 30.3% in July from 28.8% in May, according to Bank of Italy data.
Still, Iacovoni, who leads the management of Italy’s 2.46 trillion euros ($2.74 trillion) of debt, said the figure is “sustainable but still a risk factor and needs to be seriously put on a downward trend.”
The Italian official echoed comments by Finance Minister Roberto Gualtieri in his reply to the European Union’s request for clarification about its 2020 budget plan, saying fiscal consolidation and structural reforms can narrow the 10-year bond yield spread over German bonds.
Italy’s 10-year bond yield has fallen by more than 1.5% since the end of May, while the spread versus the German bund has more than halved to about 131 basis points.
Italy’s successful sale of inflation-linked bonds this week is further evidence of investor confidence, Iacovoni said. Medium-long term issuance next year will be in line with this year, with total issuance at about 240 billion euros to 245 billion euros, he added.