Italy Still Euro Swap Loser Despite Lower Losses, Higher Yields

(Bloomberg) -- Derivatives burdened Italy’s public debt again last year, confirming its position as the biggest swaps loser in the 19-region currency region.

Losses and net liabilities from contracts boosted the nation’s debt in 2018 by a total 4.7 billion euros ($5.3 billion), according to Bloomberg calculations based on data released Tuesday by the European Union statistics office Eurostat.

Italy Still Euro Swap Loser Despite Lower Losses, Higher Yields

While the derivatives impact was less than the 5.4 billion euros recorded in 2017, the total burden on Italy’s debt in the four years through 2018 exceeded 25 billion euros, also a euro-area record.

The nation’s swap-related losses and net liabilities were higher than those for the whole euro region combined in the four-year period. Nine countries, including Finland and the Netherlands, used the derivatives to help them alleviate their debts over the period.

Governments across the currency bloc have employed derivatives to manage their borrowing costs and to hedge against changes in interest rates and currency volatility. Those deals have sometimes backfired, with the effect of pushing debt even higher.

In Italy, where most contracts are tied to interest rates, the government recorded losses last year, even as borrowing costs surged with a populist government in power during the second half.

The nation’s interest payments for derivatives and swap-related liabilities will fall this year and next, the Rome-based Treasury said last week in its draft budget.

Italy’s public debt rose in 2018 to a record 2.3 trillion euros. The debt as a ratio of GDP resumed rising, reaching 132.2 percent. It had been at 131.4 percent both in 2016 and 2017.

©2019 Bloomberg L.P.