Italy Is Playing With Fire in the Bond Markets
You can see why Rome might want to seize the moment with its 30-year issue. But if things go wrong, investors won’t find it easy to forgive and forget.
Recession? Political crisis? No matter. Italy is selling long-term government debt, and investors are lapping it up.
Photographer: Alberto Pizzoli/AFP/Getty Images
Italy is not hanging about. Hot on the heels of its successful 16-year syndicated bond sale in mid-January, it has announced a new 30-year placement. Given the “fill your boots” hunger for all types of debt at the moment — from Turkey to Uzbekistan — it will probably get away okay. It’s certainly priced that way. But with the political and economic turmoil in Italy only getting worse, this may be a temporary sugar high for investors.
Italy has 250 billion euros ($285 billion) to fund this year, so you can see why Rome might want to seize advantage of the huge demand this year for European sovereign debt. But it risks being too aggressive by opting for such a long duration. After all, the European Central Bank’s bond-buying program is no longer around to provide support. A coupon in the region of 3.875 percent will no doubt tempt enough investor demand into the rarefied environment of 30-year maturity debt, but it’s a bold move when Italy has fallen back into its no-growth rut.