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Italy Raises Funding Target, Sees Big Potential Asia Demand

Wednesday, 17 Apr 2013 | 1:10 AM ET
Panoramic Images | Getty Images

Italy has raised its debt issuance target for this year by nearly 10 percent and is hoping to tap demand from Asian investors to meet the goal, its head of debt management told Reuters on Tuesday.

In an interview, Maria Cannata said the treasury has lifted its gross funding target for 2013 to just over 450 billion euros ($589 billion) from a previous estimate of 415 billion euros.

The new estimate follows a pledge by the state to pay back 40 billion euros in arrears to cash-strapped private companies in 2013-2014. It also takes into account a worsening budget deficit due to Italy's longest economic recession in two decades.

"We will spread the additional issuance evenly on all debt securities," Cannata said, adding this would have no impact on the treasury's policy of seeking to lengthen the average maturity of Italian debt.

In 2012, the treasury met a funding target of 465 billion euros but in the first half of the year it had to rely more on short-term maturities to draw demand from investors scared by the euro zone debt crisis.

This year, the European landscape is less cloudy because of the European Central Bank's pledge to buy bonds in certain circumstances if needed.

But Italy is still in a political deadlock following an inconclusive vote in February and the procedure for the election of a new president of the republic will start on April 18.

Cannata said she saw "a potential big increase in demand from Asian investors" once political uncertainty following an inconclusive election in February clears up.

She flew to Japan and China to meet investors at the beginning of April, just before the announcement of an unprecedented programme of purchases of domestic government bonds by the Bank of Japan that triggered a rally in the euro zone debt market.

"There is a lot of appetite for Italian paper but also still some caution because of the uncertainties at the domestic level and also a bit at the European level," she said.

The Sooner, The Better

The demand coming from foreign investors is focusing on Italian debt with a maturity up to two years and on the 10-year segment of the yield curve, the Debt Management Office chief said.

The challenge is to address investor appetite more towards the longer-dated bonds to allow the treasury increase the average debt life back towards 7 years from 6.5 years now.

"We would like to come back to issue a 30-year bond... The sooner the better," Cannata said. "But we do not see it happening in the next month, conditions are not there yet."

In the meantime, the treasury plans to continue its regular monthly issues of the 15-year benchmark bond that was launched in January after a long absence.

The treasury is also working to a come back on the global debt markets with a dollar-denominated bond, but the filing with the U.S. authorities has still to be completed.

What will happen without doubts in coming months is the issue of another tranche of its BTP Italia retail bond next autumn following the success of the fourth tranche launched on Monday.

The four-year inflation-linked bond has raised almost 9 billion euros, prompting the treasury to announce the early closing for the sale, two days ahead of schedule.

In 2012 the treasury sold 27 billion euros of debt in three tranche of its retail bond.

Yields on the 10-year Italian bond were 4.31 percent on Tuesday, compared with 1.27 percent for a German equivalent.