ANALYSIS-Dearth of Italian bond deals flashes long-term debt danger
(Repeats Tuesday story with no changes)
* Italy relies on auctions, retail bonds to get spending
* Average maturity of Italian debt drops from Feb's 5-yr
* Last syndication for Italy was January
By Abhinav Ramnarayan and Giulio Piovaccari
LONDON/MILAN, Nov 20 (Reuters) - Just eight months into a
period of intense political strife, Italy's debt profile is
starting to deteriorate as the country is forced to depend on
shorter-dated local bond auctions and small individual savers to
Staggering under a debt ratio of 130 percent of annual
economic output and one of the world's biggest bond issuance
programmes, Italy needs its borrowing to be low-cost but also
long-maturity; generally, the longer the tenor of the debt, the
lower the risk of repayment difficulties.
Until recently it was succeeding -- the average maturity of
Italian government debt reached 6.96 years in February, the
highest in five years. But since then, it has been falling and
stands now at 6.79 years, an 18-month low, according to a BBVA
analysis of Italian Treasury data.
The reason is that Italy has not recently been able to
attempt a debt syndication -- a deal structure in which
borrowers appoint banks to sell debt directly to international
investors, instead of just running bond auctions at home.
Such deals offer access to a far wider, deep-pocketed
investor pool and allow borrowers to raise more money in one
hit, often with longer tenors. But the populist government in
Rome and its row with the European Union over budget spending
have sapped appetite for Italian bonds.
"Syndications allow you to open up new lines, such as the
50-year bond Italy issued in 2016, which helps them lock in low
borrowing costs for many years to come," said a banker at one of
Italy's three primary dealers, banks appointed by governments to
manage their debt issuance.
Without regularly conducting syndications to sell long-dated
debt, Italy's average debt maturity will likely drop further,
bankers at Italy's two other primary dealers agreed.
"(A syndicated bond deal) is a also a strong signal that you
have market access. If Italy was to go the rest of the year
without a syndication, it doesn't look good. If they still can't
come in January (2019) - that looks very, very bad," the banker
He asked to remain anonymous as he is not authorised to
speak about his clients.
Since May, Italian borrowing costs have marched steadily
higher and yield spreads over Germany -- effectively the premium
investors demand to hold Italian risk -- has doubled.
Foreigners have shed a net 69 billion euros ($79 billion) in
Italian government bonds since May when the right-wing League
and anti-establishment 5-Star Movement first joined forces.
As a result, the Treasury has had to rely heavily on bond
auctions, where it has limited control over the price and timing
and is typically restricted to tapping existing bonds.
Average maturity tends to be shorter too, as the auctions
are a mix of shorter and longer-dated debt. The Nov. 13 auction
for instance raised 5.5 billion euros via three-year, seven-year
and 20-year bonds.
This week, the Treasury even turned to small savers to try
to raise money, tapping a type of bond it first used during the
2011-2012 crisis. But bourse data showed retail investors were
unenthusiastic, submitting orders for just 481.35 million euros
on the first day.
"I wouldn't say that Italy is immediately in trouble because
they aren't issuing any long bonds but it is still part of a
big issue," said Marie Owens Thomsen, global head of economic
research at Indosuez Wealth Management.
"Many countries that have record debt levels and how they
are going to manage this record debt, what the profile is going
to be, what the average maturity is going to be, is an issue."
Italy undoubtedly benefited in recent years from investors'
hunt for yield. As the European Central Bank's 2.6 trillion-euro
bond-buying scheme depressed borrowing costs, investors sought
out longer and longer maturities for a few additional basis
points of return.
Euro zone countries enjoyed not just record low borrowing
costs but also were able to issue long-dated debt to smoothen
out debt profiles swollen during the debt crisis.
Between 2014 and 2017, Italy completed three syndications a
year, mostly selling long-dated bonds including a blockbuster 9
billion euro 30-year deal in February 2016 and a 5 billion-euro
50-year bond in October the same year.
This year, however, it has only completed one syndication, a
9 billion-euro, 20-year deal in January.
Spain, on the other hand, has raised 27 billion euros from
four syndications this year already. That has helped it stretch
its average debt maturity this year to 7.47 years, just off the
7.58-year record hit in July, according to data from the Spanish
The primary dealers told Reuters Italy had been monitoring
bond markets for a post-summer syndication, potentially a
30-year bond, but the government's contentious draft budget
ruled this out.
Italy's 30-year borrowing costs are close to their highest
level in half a decade at 4.13 percent. The coupon on its last
30-year bond syndication, a March 2048 note, was 3.45 percent.
Rome may still try next year to revive plans for a
syndicated 30- or 15-year bond, said Filippo Mormando, a
strategist at MPS Capital Services, the investment banking arm
of Banca Monte dei Paschi di Siena and one of Italy's primary
But if political tensions are still simmering, the debt
agency may have to rely more on retail bonds, Mormando said.
"What might be missing is more 'creative' stuff, like bonds
in foreign currency, longer-dated inflation linked, green bonds
like the one France is doing, social bonds and stuff like that,"
(Reporting by Abhinav Ramnarayan, Additional reporting by
Giulio Piovaccari in MILAN
Editing by Robin Pomeroy)
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