The BTP Italia is off to a good start, but the government’s sovereign strategy has a weak point

The second Btp Italia of the Meloni government got off to a good start yesterday (the first dates back to last November and collected 12 billion euros, of which 7 billion from small savers). Marcello Rubiusole director of NoRisk, an independent financial consultancy company, the only one to have built an index of the BTP Italia since it was first launched in 2012, explains to Il Foglio why: “With inflation still so high, the first coupon of the BTP Italia could be very substantial, but these securities are attractive over the entire five-year term for households experiencing an erosion of purchasing power”.

The calculation is easy to do: the Mef has set the minimum annual coupon at 2 percent and a loyalty bonus of 8 per thousand for those who hold the bonds until maturity, which are added to the capital appreciation based on high prices. Even with inflation expected to drop from current levels (8.5 per cent in February), it is estimated that the average annual potential return of the BTP Italia will be 5-6 per cent between now and 2028 (maturity year) with a peak of 7-8 percent the first year. This yield, Rubiu points out, is higher than ordinary BTPs of the same duration which, with the spread at 178 basis points, is less than 4 percent.

The Meloni government is counting heavily on this issue to inaugurate a phase of fiscal activism of the sovereign-patriotic type convinced as it is of the need to increase the amount of public debt in the hands of Italian households. Does this strategy make sense? “My opinion on the BTP Italia is positive, on the strategy that could be behind it I am, however, more skeptical”, continues Rubiu, who recalls how important it is for holders of savings to avoid the concentration of risk in a single country while the principle to follow is always that of diversification. So, BTPs are fine but without exaggerating, right? “When it comes to money there is no point in talking about patriotism, the percentage of government bonds in a savings portfolio should never exceed 30 percent”, adds the expert. But there is also another aspect, which has to do with the government’s intention to counter the fluctuations in the spread. “I think the model you are looking at is somewhat that of Japan, which despite a debt-to-GDP ratio of 230 per cent, has not experienced a sovereign debt crisis precisely because most of it is kept in the hands of families loyal to the nation. But in my opinion it is not a model to imitate because a government should not escape the judgment of the markets on the sustainability of fiscal policieswhich otherwise risk going out of control, as has happened in some cases”.

According to this reasoning, the presence of foreign investors in the allocation of Italian public debt can represent a thermometer of the adequacy of public spending. But the MEF doesn’t think exactly that way and what prevails is the orientation to modify the weights of the current subdivision of the overall stock of government bonds which sees the Bank of Italy (therefore, the ECB) in first place with 31 per cent, national banks 18 per cent, financial companies 15 per cent, other residents 8 per cent and non-residents 28 per cent. What we would like to do is increase the share of Italian debt in the hands of “other residents”, which represents the category identifiable with households and businesses (those not of a financial nature, therefore always private) from the current 8 percent to a level at least approaching the 15 percent of 10 years ago. An operation which, according to the Mef, is more urgent than ever now that Italy no longer has the crutch of the ECB. Evidently, the echo of the tweet by Robin Broox, former banker of Goldman Sachs and chief economist of the International Institute of Finance, is still fresh, who last October, when the Meloni government had just taken office, reminded the world that “the Italy’s net issuance of new debt was financed almost entirely by the ECB in six of the seven years between 2015 and 2021.

However, Btp Italia are by no means new: 19 issues have taken place since 2012, but inflation has always been very low, so their attractiveness was relative. In June 2022 it was the Draghi government that promoted an issue while inflation in our country ran towards the 10-12 percent target, giving away a first rich six-monthly coupon at the end of the year.