Analysis-Italy’s small investor push to slacken when ECB rate cuts start

By Thomson Reuters Feb 16, 2024 | 12:06 AM

By Sara Rossi

MILAN (Reuters) – Elisabetta Trevisan, a 50-year-old teacher from Venice, plans to use interest payments from an Italian bond for small savers to help put her two sons through university.

The three bonds she bought for 40,000 euros ($43,100) carry an annual coupon of up to 4.5%, a healthy mark-up on other savings options, with payments every three or six months.

“With a 0.001% annual interest rate from my bank account, I would have earned four cents!”, Trevisan told Reuters.

Trevisan is one of thousands of ordinary Italians who bought part of Rome’s 2.4 trillion euro public debt in 2023, attracted by enticing returns and fearing sky-high inflation could erode the value of their cash.

The government – managing a debt-to-GDP ratio of around 140%, the second largest in the euro zone – rode that wave, aware that small savers are less likely to pull out their money in a potential crisis and their trust in Rome’s debt encourages foreign investors.

The campaign was successful with the share of BTPs or Buoni del Tesoro Poliennali (Medium- to long-term Treasury bonds) held by domestic retail buyers jumping from 6% in mid-2022 to 13.5% by October, its highest level since 2014, Bank of Italy data showed.

However, analysts warn that the trend will lose some steam this year, possibly weakening a key pillar in the Treasury’s strategy to find buyers for one of the world’s largest public debt piles.

This, they say, is mainly because the prospect of European Central Bank interest rate cuts will probably make Italian government bond yields less attractive to small savers.

At the same time banks, which have struggled to compete with the state for their customers’ cash, may reward deposits more generously through higher rates rather than continue to bleed funding as their clients buy BTPs.

“After a 2023 with very hefty demand from retail investors, there is unlikely to be a repeat of last year’s strength,” said Luca Cazzulani, head of strategy reasearch at UniCredit.

He forecast that small investors in the euro zone’s third largest economy would probably subscribe for 30-40 billion euros in government bonds in 2024, a considerable sum compared with European peers, but well below last year’s over 100 billion.

Filippo Mormando, strategist at Spanish bank BBVA, forecast at least 70 billion euros of retail purchases this year.

“Given the record demand seen last year, a moderate drop in 2024 would not be surprising nor worrisome,” said a source familiar with debt management.


In absolute terms retail investors, namely non-professional ones, held around 320 billion euros of Italian sovereign debt by October last year, the highest level since the euro’s launch 25 years ago. Some 270 billion of that lay with individual savers.

Households in other euro zone states have a far smaller role in the sovereign debt market.

In Belgium, retail investors’ share of the country’s debt has recently risen to around 5%, while in Germany and France it is close to zero, said Cazzulani, citing third quarter ECB data.

He said in Italy the Treasury has built up a “historically good relationship with small savers” due to the huge pile of debt it has to manage.

Since the height of the euro zone debt crisis in 2012 the Economy Ministry has introduced several types of bonds specifically for retail investors. These drew last year a total of some 44 billion euros investment.

Last week, during the hugely popular Sanremo song festival, Rome broadcast an advertisement for a 6-year bond for retail investors it will offer at the end of the month.

Retail bond investors are typically of modest wealth and have fairly low risk appetite.

“They do not have a lot of money, they need solid guarantees on their savings and a swift possibility to use the money if a sudden expense arises,” said Barbara Puschiasis, vice president of national consumer association Consumerismo.

Small savers are attracted by the low tax rate of 12.5% on income from Italian bonds, half that for other financial assets.

Futhermore, this year’s budget law allows them to take up to 50,000 euros worth of government bonds out of the ISEE, a wealth index the state uses to assess eligibility for welfare benefits.


Ordinary Italians’ commitment also provides reassurance to international investors – if domestic savers have enough faith in Rome to heavily buy its debt, then foreigners who follow the country from afar have less reason to be nervous.

“Strong demand from small savers likely boosted confidence of foreign investors, who were the second-largest buyer in 2023, with net purchases of around 40 billion euros,” said UniCredit’s Cazzulani.

Before the 2008 financial crisis shattered investor confidence, the share of Italian debt in the hands of domestic savers stood as high as 20%, a level that can be reached again, said Roberto Rossignoli, portfolio manager at Moneyfarm.

BBVA’s Mormando said continued strong purchases of BTPs by retail investors could potentially lead to a further narrowing of the gap between Italian and German bond yields, a key gauge of investor confidence in high-debt Italy.

The BTP-Bund spread has narrowed to 150 basis points, its lowest level in almost two years.

($1 = 0.9308 euros)

(Reporting by Sara Rossi, editing by Mark John and Toby Chopra)