MNI: Italy Considers Partially-Indexed Retail Bond In 2023

The Italian government is considering selling a new partially inflation-indexed bond to retail investors in 2023, using tax breaks to boost demand as it seeks to maintain its borrowing plans as the European Central Bank hikes rates, official sources told MNI.

The new bond, which was proposed by lawmakers and is now under consideration by the government, would be similar to the existing BTP Italia, though it would not completely compensate for inflation, the officials said. Its issuance still depends on final approval of a law allowing for the creation of “Special Long-Term Treasury Bills” which was sent to parliament in November, and initial hopes for sales of up to EUR100 billion have been pared down following talks with the Treasury.

The final design of the bond could differ from that specified in the current draft bill, but it would include some kind of inflation indexation, a bonus for holding the debt until maturity, and tax benefits, said Chamber of Deputies member Giulio Centemero, a member of the right-wing League party who has sponsored the bill. Sale will be open to individuals registered for Italian income tax, he told MNI, adding that the bill should be approved this year.

The Finance Ministry, led by another League member, Giancarlo Giorgetti, is analysing the impact that the new bond would have on its borrowing objectives and costs, and its conclusions will help shape its design, officials said. (See MNI: Italy Knows Budget Over-Optimistic On Nominal GDP-Sources)

CAPPING COSTS

While the Treasury indicated in its borrowing guidelines for 2023 that it could issue more BTP Italia and BTP Futura to retail investors, the new indexed bond would be part of a bigger drive to draw on ample domestic savings to fund increased investment, a Finance Ministry source told MNI, adding that the government had spoken to commercial banks about the plans. It would be the latest bid by Italy to tap retail investors, with previous efforts including a “BTP Day” organised by former Prime Minister Mario Monti a decade ago.

While the new bond will incorporate features of BTP Italia and Futura, full indexation could be too expensive given high current rates of inflation, the sources said.

Some EUR25 billion in BTP Italia bonds come due in 2023, which should leave space for fresh retail debt, they said.

“The amount of money that Italians invest in their own debt and economy is lower than in Spain”, Centemero said, arguing that the investment potential from Italian savings would be equivalent to seven times the EUR200 billion Italy has drawn from the EU’s NextGenerationEU programme.

A key motivation for the government is to cap its borrowing costs as the ECB raises interest rates.