June 15, 2018 / 2:33 PM / 4 months ago

Foreigners stocked up on Italian bonds before May's sell-off

MILAN, June 15 (Reuters) - Foreign investors stocked up on Italian government bonds after an inconclusive March 4 vote, data showed on Friday, paving the way for a violent sell-off in May when an anti-establishment coalition government first took shape.

Foreign holdings of Italian bonds rose to a two-year high of 712.73 billion euros ($827 billion) in March, up 24 billion euros from February, the Bank of Italy said in a monthly report.

The figure includes bonds Italians buy through asset managers based abroad and purchases carried out by the European Central Bank under its quantitative easing programme.

However, UniCredit analyst Luca Cazzulani calculated that Italian funds based abroad had net inflows of just 3.3 billion euros in the first quarter.

This “suggests that most of the buying that emerges from the Bank of Italy data in March was related to genuine foreign investors,” Cazzulani said in a note, adding that “non-resident investors were the main sellers during the sell-off.”

Investors dumped Italian bonds in May, frightened by the spending plans and anti-euro rhetoric of a government coalition comprising the anti-system 5 Star Movement and far right League.

Italian debt has since regained some ground, helped by reassuring comments from the new economy minister, an academic with no political affiliation who was picked after Italy’s president blocked the appointment of an anti-euro economist.

Confirmation of cooling foreign demand for Italian assets came from data last week showing that the Bank of Italy’s negative position within the euro zone cross-border payment system rose by 38.6 billion euros in May to a record high of 464.65 billion euros.

A rise in the Bank of Italy’s liabilities towards other euro zone central bank signals net capital outflows from the country.

$1 = 0.8616 euros Reporting by Valentina Za and Giulio Piovaccari, editing by Larry King

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