Italy: Strong Demand for the New Retail Bond; Scrutiny Over Fiscal and Economic Performance to Continue

The Republic of Italy (rated BBB (high), Positive) launched last week a new retail bond called BTP Più. The total amount collected in its first issuance, EUR 14.9 billion, was roughly in line with the average amount per issuance for Italy's retail bonds last year. This, in our view, confirms the continued appetite of Italian retail investors, i.e. households and small businesses, for these bespoke products. The significant increase in demand from retail investors for Italy's sovereign securities in recent years has helped the country diversify further its investor base and absorb its large borrowing needs.

Given Italy's large public financing needs and the ECB's quantitative tightening, the private sector will need to continue to absorb significant amounts of public debt. We consider that both households and non-resident investors have more space to increase their holdings. In this context, Italy's success in rebalancing public finances and accelerating the execution of the European funds will remain key to avoiding swings in investor confidence and to increasing investor appetite for Italian bonds.

Key Highlights:
-- The Italian government last week launched a new retail bond with a first issuance totalling EUR 14.9 billion, roughly in line with its retail bond issuances last year.
-- Households still have room to continue absorbing Italian public debt, despite substantial investments in recent years.
-- Given the large public financing needs and the ECB's quantitative tightening, preserving investor confidence remains key for Italy.

"The significant increase in retail investors' demand for Italy's sovereign securities in recent years has helped the country diversify further its investor base and absorb its large borrowing needs," said Javier Rouillet, Senior Vice President, Morningstar DBRS, Global Sovereign Ratings. "Also, foreign investors have stepped-up their purchases in recent months, which in part could reflect an improved perception of political stability. Foreign investors, perceived as more volatile, will monitor Italy's success in rebalancing public finances and accelerating spending of the European funds."