Bumper Italian retail bond sale eases funding pressures

Reuters

By Valentina Za

MILAN, Nov 5 (Reuters) - Italy raised almost 17 billioneuros from the first day of sales of a new government bond tiedto inflation targetted at small investors, giving it more leewayto reduce its international borrowing for the rest of the year.

Analysts and the Treasury had mooted a sale of just 10billion euros of the paper and officials said they would haltthe deal at 1300 local time on Wednesday, less than two daysinto a marketing push that could have lasted up to four days.

It looked set to be the biggest single debt sale by aEuropean government ever and was the latest sign of the strengthof the finances of households and the private sector in Italy,where very low debt contrasts with a heavily indebted state.

By the close of play on Tuesday, the Treasury had receivedorders for 16.8 billion euros of the bonds, all of which will besatisfied. Analysts said it was now likely to cancel itsmid-December bond sales.

"(Even) with 15 billion euros, for instance, they will beable to reduce the size of the auctions significantly for therest of the year," UniCredit strategist Luca Cazzulani said.

A similar sale a year ago brought a record of 18 billioneuros into the Treasury.

Foreign institutional clients took 12 percent of a similarbond sold in April for 17 billion euros. Traders said financialinstitutions were weighing in also this time - a sign of theimprovement in Italy's situation since worries about itsfinances deepened the euro zone's debt crisis last year.

"Such high demand likely points to a robust take-up byinstitutional players, including foreign ones," said INGstrategist Alessandro Giansanti.

The new "BTP Italia" bond hit the marketafter data last week showed a sharp slowdown in Italianinflation. But a real yield of at least 2.15 percent provedattractive for institutional buyers, defying expectations ofsubdued demand amid weak consumer prices.

That return was higher than that for conventional Italianinflation-linked bonds sold to institutional investors for tradeon international markets.

"Given a real yield of 1.66 percent for Italy's Sept. 2017regular linker it's clear that the retail bond can be attractivealso for institutional investors," Intesa Sanpaolo strategistChiara Manenti said.

A minimum real yield of 2.15 percent means the new BTPItalia only needs inflation to be around 0.35 percent to matchthe return of the corresponding nominal bond.

Italy's annual inflation rate slowed to a four-year low of0.7 percent in October. The Treasury will set the final realcoupon of the BTP Italia at the end of the offer.

INVESTOR BASE

First launched in March 2012 to help Italy cope with foreigninvestors' reluctance to hold its debt in the face of a hump inits refinancing needs, BTP Italia bonds have reaped 44 billioneuros over the previous five issues.

They are designed to appeal to Italy's wealthy savers as theTreasury seeks to diversify its investor base.

"It is good that they found a succesful way to tap smallsavers because Italian banks may be less able to buy domesticbonds as they repay longer-term funds to the European CentralBank and come under close scrutiny by it," Giansanti said.

Italian banks are seen less likely to support the Treasury'sfunding efforts in the future.

The state has raised 89 percent of around 470 billion eurosit needs this year after selling 18.4 billion euros in debt lastweek.

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