May 12, 2017 / 1:05 PM / 3 months ago

INTERVIEW-Italy's debt head sees good demand for net BTP Italia bond

3 Min Read

MILAN, May 12 (Reuters) - Italy's Treasury expects good demand for a new BTP Italia inflation-linked bond it will offer to retail investors next week and has already met 42-43 percent of its gross funding needs for this year, the head of debt management told Reuters.

Italy will start selling a new BTP Italia bond maturing May 22, 2023 on Monday. The bond pays a real coupon of at least 0.45 percent plus domestic inflation.

The last such issue, which had an eight-year maturity, raised 5.2 billion euros.

"I expect more interest compared with last time ... inflation is recovering and yields are no longer 'underground' like last year," Maria Cannata told Reuters in an interview.

"Barring explosive demand, we are planning to let the first phase of the offering, reserved to retail investors, run for the full three days, with no early closure."

Italy introduced the BTP Italia bonds at the height of the euro zone debt crisis to tap large private wealth at home in the face of scant foreign demand for its debt.

Paying a generous premium over the Italian inflation rate, the bonds have also proved a success with institutional buyers, leading to record-sized issues and prompting the Treasury to limit the amount sold to professional investors.

"Depending on the amount sold to the public we reserve the right, as usual, to limit how much we allocate to institutional buyers," Cannata said.

A fall in government bond yields driven by the European Central Bank's ultra-expansionary policies has led ordinary Italians to cut traditionally high holdings of domestic bonds.

Cannata said there were no signs of a pick-up in retail interest in standard Italian government bonds.

Another important group of buyers, the country's banks, are also reducing their holdings due to regulatory concerns. Cannata said the Treasury could rely on asset managers and insurers, which have now come to hold around one quarter of Italian bonds.

Italy's public debt is the world's third-largest after the United States and Japan. As a proportion of domestic output it is second only to Greece's in the euro zone.

Italy's large debt pile and feeble economic growth make the euro zone's third-largest economy a focus of investor concerns over a possible break-up of the bloc, as the ECB prepares to scale down its monthly purchases of government bonds.

"There is great uncertainty in Europe and analysts often feed alarms of various nature, but (ECB President Mario) Draghi is ready with his foot on the brake when markets start speculating on when the quantitative easing programme might end," Cannata said.

Based on Reuters calculations, Italy's gross issuance so far this year totals around 185 billion euros. (Writing by Valentina Za; Editing by Catherine Evans)

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