There is a very simple reason why in recent months Italian banks have been “forced” to buy near record amount of Italian debt (which for now at least is backtopped by the ECB): because nobody else wants them.
As frequent readers will recall, back in July we reported that during the first Italian bond crisis this year in May, when BTP yields soared after the populist government came to power, Italian banks purchased over €28.4BN in Italian government bonds, the largest monthly amount ever and higher than at any time seen during the 2012 sovereign debt crisis.
Two months later we showed the flip side: while domestic banks – still backstopped by the ECB – were scrambling to buy up all the BTPs they could find, foreigners were dumping it with bond hands. As the chart below shows, holdings of Italian debt by foreign investors declined by a net €38bn in June, eclipsing the previous month’s net fall of €34bn, which was itself a record.
So while we have known for a while that Italian banks were buying up all the Italian bonds that foreigners had to sell, an outstanding question is how did Italian retail investors feel about buying (or holding) the country’s debt?
We finally got an answer earlier today, when Italy held its first offering of inflation-linked bonds targeted at the retail segment since the market turmoil in May. The answer: a disaster.
As Bloomberg notes, “Italy’s domestic investors have given a resounding thumbs-down to the populist government’s funding efforts”, because retail demand for the bond offering saw the lowest number of orders for a BTP Italia issue since they were introduced in 2012.
Retail investors’ orders for the BTP Italia bond totaled €864 million at the end of the third day of the sale: a record low. That compares with the previous low of €974 million in 2012, and an all-time high of €17 billion in 2013.
