Italian Retail Investors Refuse to Pick Up Populists’ Tab

(Bloomberg) -- Italy’s domestic investors have given a resounding thumbs-down to the populist government’s funding efforts.

The nation’s first offering of inflation-linked bonds targeted at the retail segment since the market turmoil in May garnered the lowest amount of orders for a BTP Italia issue since they were introduced in 2012.

The Treasury may still raise what analysts estimate would be around 5 billion euros ($5.7 billion), with the bulk of it coming on Thursday, the fourth and last day of the exercise, which is open only to institutional investors. The notes will pay a minimum coupon of 1.45 percent.

The prospects were looking bleak as of 9:00 a.m. London time Thursday, with institutional order books at 660 million euros, according to one trader familiar with the matter. That’s below the previous low of 762 million euros that professional investors bought in 2012, and well short of the 10.5 billion-euro high in 2014.

The vote of no-confidence by local investors will be a worry for Italy’s leaders as they look to borrow more money to finance their policy proposals. The government has penciled in a wider budget-deficit target of 2.4 percent of gross domestic product, putting it in conflict with the European Union’s spending rules. The $2 trillion economy is the second-most indebted in the euro area.

Italian 10-year yields have surged 150 basis points this year to 3.50 percent, with a much-watched spread over comparable German bunds having more than doubled to 315 basis points. Recent price fluctuations would most likely have put many investors off the sale, according to NatWest Markets Plc.

Bond Spread

“The spread is in the Italian press daily, so there is a good deal of awareness of recent volatility among Italian savers,” said Giles Gale, an interest rates strategist. “Their support is important symbolically.”

The EU took the first step toward imposing fines on the region’s fourth-largest economy Wednesday after stating the coalition administration’s spending plans violate the bloc’s rules. Italian Prime Minister Giuseppe Conte is scheduled to address the lower house of parliament at 5 p.m. local time today, Ansa reported.

Retail investors’ orders for the BTP Italia bond totaled 864 million euros at the end of the third day of the sale. That compares with the previous low of 974 million euros in 2012, and a high of 17 billion euros in 2013.

BTP Italia securities are typically sold once every six months.

Italy’s Deputy Prime Minister Matteo Salvini said that he won’t back down on the budget in an interview with RAI television Thursday. He added that he was “concerned” about the nation’s bond yield spread with German securities, but added that it cannot be controlled by the government. While his stance may not be popular with investors, support for his party has grown in recent months, according to polls.

“The Italian Treasury has seen little more than lukewarm retail demand for its inflation-linked BTP Italia issue,” said Marc Ostwald, global strategist at ADM Investors Services. It serves “as a reminder that while the public may be applauding the government facing down the EU, investors are clearly voting with their pockets.”

To contact the reporters on this story: John Ainger in London at jainger@bloomberg.net;James Hirai in London at jhirai3@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Scott Hamilton, Keith Jenkins

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