Analysis – ‘magical moment’ for Italian bonds as foreign interest recovers
By Sarah Rossi and Gavin Jones
Milan, May 16 (Reuters) – International investors are poised to reverse a decade of investment from Italian bonds as high yields and encouraging economic reports spur demand for the bond, according to the latest data and analysts.
A vote of confidence in a bond market long regarded as one of the riskiest in the eurozone will boost Rome’s efforts as the European Central Bank to manage the eurozone’s second largest debt pile. right. calm down purchase the bond.
Italian government paper holdings abroad rose in February after a tenth straight month of decline, according to data from the Bank of Italy.
Moreover, the value of Italian notes borrowed by investors betting on price declines in April fell nearly 40% from a peak of $46 billion in mid-November to 270, according to data from S&P Global Market Intelligence. billion dollars.
Analysts say stronger than expected economic growthdeclining public debt and the prospect of political stability after the seven months in office of Giorgia Meloni have led foreign investors to return to Italian government bonds, rebounding demand even as the recent banking turmoil roiled global markets. proved to be powerful.
Domenico Siniscalco, vice chairman of Morgan Stanley and former Italian economy minister, said Italy was no longer seen as an object of speculation and that international investors now looked at the country with “complete calmness and confidence”. said that
“This is a magical moment for Italian government bonds,” he told Reuters.
There is a lot of lost ground to make up for.
Foreign investors’ share of Italy’s government debt fell from around 50% before the 2008 financial crisis to less than 20% at the end of 2022, according to Bank of Italy data. The 2012 Eurozone debt crisis and the COVID-19 pandemic caused a sharp decline.
Luca Cazurani, head of strategy research at UniCredit, said the level of yields presented by the Italian paper has become too much for foreign banks and funds to ignore.
“Maintaining an underweight position on Italy risks hurting (investors’) performance,” he said.
Italy’s 10-year BTP bond yield has risen from a record low of about 0.4% in February 2021 to about 4.2% following the ECB’s massive rate hike cycle that began last July. IT10YT=RR.
10-Year Yield Nearly Doubles Higher Grade German Yield DE10YT=RR About 70bps above US benchmark yields US10YT=RR.
positive growth surprise
Italy’s economic growth, traditionally a laggard within the eurozone, has consistently outperformed expectations since the end of the coronavirus pandemic, with gross domestic product (GDP) 3.7% last year 7.0% or higher in 2021.
This kind of growth represents a post-pandemic recovery that analysts say is unsustainable, but positive surprises continued in the first quarter, when GDP rose 0.5% from the previous three months.
The Treasury Department raised its full-year forecast in April to 1.0% from 0.6%.
Filippo Mormando, fixed income strategist at Spanish bank BBVA, said of Rome’s recent investment, “We are already seeing positive attitudes towards Italy from non-domestic investors.” syndicated bond tradingthe flow of funds in the latest balance of payments data.
Mormando said a new trend could emerge in April, thanks to investors’ perception that global central banks will be less aggressive in raising interest rates in the wake of the US banking turmoil, and Italy’s progress in covering its funding needs. said it started in
Italy has already met this year’s net funding requirements, well ahead of Germany, France and Spain.
Politically, Mr. Meloni, who took office in October, has largely avoided a confrontation with the European Union and has committed to keeping the budget deficit and public debt on a declining track.
“Last year, hedge funds that speculated in Italy, possibly after the election, closed their positions,” said Luca Mezzomo, head of macroeconomic analysis at Intesa Sanpaolo. I am waiting,” he said.
help
Italy’s debt-to-GDP ratio fell to 144.6% last year, down 5 percentage points from a year earlier and 10 percentage points from 2020, also helping sentiment. Meloni is targeting a drop to 141.4% this year.
This downward trend is being fueled by a spike in inflation, which raises revenues and nominal GDP, and commensurately lowers the debt-to-GDP ratio.
The pictures are not all rosy. Rising ECB interest rates are driving up borrowing costs for sovereigns as well as businesses, with Rome struggling to meet its policy commitments to the European Commission in exchange for nearly €200bn ($220.16bn) of loans. are doing. pandemic recovery fund Until 2026.
The country is also behind schedule in spending remittances from the EU it has already received.
But Morgan Stanley’s Siniscalco said the difficulties were not enough to undermine promising financial performance or undermine investor confidence.
Last month’s Fitch Ratings on Friday Downgrading Franceconfirmed to the BBB that Italy’s outlook is stable, while raising its forecast for Italy’s GDP growth this year to 1.2% from 0.5%, above the government’s own forecast.
The Italian Finance Ministry has already taken steps to stimulate demand for government bonds as the ECB. withdrawby promoting purchases Domestic household and enterprise.
Italian families and businesses now hold about 215 billion euros, or 9% of Rome’s debt, the highest level since mid-2015, according to UniCredit’s Cazurani.
(1 dollar = 0.9084 euro)
Italian domestic investorhttps://tmsnrt.rs/44W1LEc
Italy – Government Bondshttps://tmsnrt.rs/3LVrdRv
(Editing: Emelia Sitor-Matarize)
((sara.rossi@thomsonreuters.com+39 06 8030 7736;))
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
Summarize this content to 100 words
By Sarah Rossi and Gavin Jones
Milan, May 16 (Reuters) – International investors are poised to reverse a decade of investment from Italian bonds as high yields and encouraging economic reports spur demand for the bond, according to the latest data and analysts.
A vote of confidence in a bond market long regarded as one of the riskiest in the eurozone will boost Rome’s efforts as the European Central Bank to manage the eurozone’s second largest debt pile. right. calm down purchase the bond.
Italian government paper holdings abroad rose in February after a tenth straight month of decline, according to data from the Bank of Italy.
Moreover, the value of Italian notes borrowed by investors betting on price declines in April fell nearly 40% from a peak of $46 billion in mid-November to 270, according to data from S&P Global Market Intelligence. billion dollars.
Analysts say stronger than expected economic growthdeclining public debt and the prospect of political stability after the seven months in office of Giorgia Meloni have led foreign investors to return to Italian government bonds, rebounding demand even as the recent banking turmoil roiled global markets. proved to be powerful.
Domenico Siniscalco, vice chairman of Morgan Stanley and former Italian economy minister, said Italy was no longer seen as an object of speculation and that international investors now looked at the country with “complete calmness and confidence”. said that
“This is a magical moment for Italian government bonds,” he told Reuters.
There is a lot of lost ground to make up for.
Foreign investors’ share of Italy’s government debt fell from around 50% before the 2008 financial crisis to less than 20% at the end of 2022, according to Bank of Italy data. The 2012 Eurozone debt crisis and the COVID-19 pandemic caused a sharp decline.
Luca Cazurani, head of strategy research at UniCredit, said the level of yields presented by the Italian paper has become too much for foreign banks and funds to ignore.
“Maintaining an underweight position on Italy risks hurting (investors’) performance,” he said.
Italy’s 10-year BTP bond yield has risen from a record low of about 0.4% in February 2021 to about 4.2% following the ECB’s massive rate hike cycle that began last July. IT10YT=RR.
10-Year Yield Nearly Doubles Higher Grade German Yield DE10YT=RR About 70bps above US benchmark yields US10YT=RR.
positive growth surprise
Italy’s economic growth, traditionally a laggard within the eurozone, has consistently outperformed expectations since the end of the coronavirus pandemic, with gross domestic product (GDP) 3.7% last year 7.0% or higher in 2021.
This kind of growth represents a post-pandemic recovery that analysts say is unsustainable, but positive surprises continued in the first quarter, when GDP rose 0.5% from the previous three months.
The Treasury Department raised its full-year forecast in April to 1.0% from 0.6%.
Filippo Mormando, fixed income strategist at Spanish bank BBVA, said of Rome’s recent investment, “We are already seeing positive attitudes towards Italy from non-domestic investors.” syndicated bond tradingthe flow of funds in the latest balance of payments data.
Mormando said a new trend could emerge in April, thanks to investors’ perception that global central banks will be less aggressive in raising interest rates in the wake of the US banking turmoil, and Italy’s progress in covering its funding needs. said it started in
Italy has already met this year’s net funding requirements, well ahead of Germany, France and Spain.
Politically, Mr. Meloni, who took office in October, has largely avoided a confrontation with the European Union and has committed to keeping the budget deficit and public debt on a declining track.
“Last year, hedge funds that speculated in Italy, possibly after the election, closed their positions,” said Luca Mezzomo, head of macroeconomic analysis at Intesa Sanpaolo. I am waiting,” he said.
help
Italy’s debt-to-GDP ratio fell to 144.6% last year, down 5 percentage points from a year earlier and 10 percentage points from 2020, also helping sentiment. Meloni is targeting a drop to 141.4% this year.
This downward trend is being fueled by a spike in inflation, which raises revenues and nominal GDP, and commensurately lowers the debt-to-GDP ratio.
The pictures are not all rosy. Rising ECB interest rates are driving up borrowing costs for sovereigns as well as businesses, with Rome struggling to meet its policy commitments to the European Commission in exchange for nearly €200bn ($220.16bn) of loans. are doing. pandemic recovery fund Until 2026.
The country is also behind schedule in spending remittances from the EU it has already received.
But Morgan Stanley’s Siniscalco said the difficulties were not enough to undermine promising financial performance or undermine investor confidence.
Last month’s Fitch Ratings on Friday Downgrading Franceconfirmed to the BBB that Italy’s outlook is stable, while raising its forecast for Italy’s GDP growth this year to 1.2% from 0.5%, above the government’s own forecast.
The Italian Finance Ministry has already taken steps to stimulate demand for government bonds as the ECB. withdrawby promoting purchases Domestic household and enterprise.
Italian families and businesses now hold about 215 billion euros, or 9% of Rome’s debt, the highest level since mid-2015, according to UniCredit’s Cazurani.
(1 dollar = 0.9084 euro)
Italian domestic investorhttps://tmsnrt.rs/44W1LEc
Italy – Government Bondshttps://tmsnrt.rs/3LVrdRv
(Editing: Emelia Sitor-Matarize)
((sara.rossi@thomsonreuters.com+39 06 8030 7736;))
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
https://www.nasdaq.com/articles/analysis-magic-moment-for-italian-bonds-as-foreign-interest-revives Analysis – ‘magical moment’ for Italian bonds as foreign interest recovers
