MNI INTERVIEW1: Italy, Ratings Agencies, In Constructive Talks

The Italian Treasury is “quite confident” ahead of sovereign debt rating updates over the coming weeks after a “very constructive dialogue” with ratings agencies and as the economy grows more quickly than expected, Director General of Public Debt Davide Iacovoni told MNI.

The credit agencies asked the government about its views on the economy’s outlook over the coming years, preparations for any winter spike in energy prices, and implementation of its European Union-funded National Recovery Plan, Iacovoni said in an interview. (See MNI: Italy Tells Brussels Will Miss June NGEU Deadlines-Source)

Fitch Ratings is set to release its rating update on May 12, while Moody’s, which put a negative outlook on its rating in August, will follow on May 19. The announcements will come as Italy faces a one-month delay on disbursement of its third tranche of NextGenerationEU funds and after Goldman Sachs issued a recommendation to sell Italy’s BTP bonds.

“These are all points that are part of the discussions with them. But it seems to be quite constructive and they're more trying to understand,” said Iacovoni, adding that Italy’s economy first quarter growth was “much higher than expected” and that the energy situation is “very much under control”.

ECB PURCHASES

A change in the composition of investors for Italian debt is expected to continue as the European Central Bank reduces its purchases, Iacovoni said, though he rejected the suggestion that the upcoming launch of a new BTP Valore retail bond came in response to quantitative tightening. (See MNI INTERVIEW2: Italy To Sell More BTP Valore After Summer)

While Italy will tap retail investors, the Treasury is “fully engaged” with both domestic and foreign institutional buyers, Iacovoni stressed.

“We are also seeing some revival not only from retail investors, but also from foreign investors, according to the latest data, which are quite positive for Italian debt,” he said.

The ECB’s aim to end reinvestment in July of bonds acquired under its Asset Purchase Programme “will require actions from our side in terms of capacity of distributing bonds among private investors,” he said, adding that Italy has been adapting to the new monetary environment since the ECB started raising rates last July.

Iacovoni said he was confident that the ECB would continue to make reinvestments under its Pandemic Emergency Purchase Programme at least until the end of 2024, beyond which predictions were difficult.

“The main scenario in our case is to figure out that the investor base will need to change gradually over the next four or five years quite significantly,” he said.

Iacovoni did not want to provide any estimate of how much the tightening effect of the end of APP reinvestments would equate in terms of rate hikes, saying there were too many variables.

While perceptions of risk could potentially raise Italy’s debt costs, it was possible that German-Italian spreads could even tighten, he said, given that the ECB holds more German debt that it will allow to mature than Italian bonds.