Italian issuers seen catching early 2024 bond market train

By Valentina Za

MILAN (Reuters) – Italian corporate and financial issuers are expected to hit the road running in January, seizing the traditional start of the year momentum on bond markets to lock in attractive yields, bankers and investors said.

While the first quarter is a busy time for debt sales generally, Italian issuers have reasons of their own to tap into renewed investor appetite for bonds before any potential political instability in the run up to a June vote for the European parliament.

“There’s strong demand from investors who, in the very short term, don’t see major threats to the macroeconomic and geopolitical environment,” said Marco Spano, managing director and co-head of debt capital markets and financing at Mediobanca (OTC:).

“In terms of volumes, we expect a very strong first half from Italian issuers – and an even stronger first quarter, starting early January. Those waiting it out will want to take advantage of a benign juncture to refinance, and do so before the European elections may stoke market volatility.”

Despite a relatively sound budget policy, Italy’s nationalist coalition has unnerved investors with market-unfriendly moves such as an extraordinary bank tax which Rome imposed out of the blue in August and later effectively dropped.

Bankers in Milan said the electoral campaign for the EU parliament could see Prime Minister Giorgia Meloni’s coalition partner Matteo Salvini harden his League party’s stance in a quest for votes, hurting investor sentiment.

Many Italian companies shunned bond markets this year, using available cash as credits costs soared and postponing investments amid a worsening economic outlook and uncertainty about interest rates’ peak level.

Mediobanca calculated Italian corporate bond issues totalled 24.4 billion euros this year, which is above last year’s 16.2 billion but well below the 37.4 billion companies raised in 2021, before the Ukraine war and the start of an aggressive rate hiking cycle hammered bond markets in 2022.

In recent weeks, the backdrop has improved markedly thanks to a sharp drop in market rates as inflation fears eased.

While Rome’s debt still rewards investors with an attractive risk premium, this has shrunk after all the major credit rating agencies gave the country the thumbs-up during their periodic reviews, giving an edge to Italian issuers.

Some Italian banks have already seized the moment, with second-tier lender Banco BPM last month selling Additional Tier 1 (AT1) bonds – the riskiest type of bank debt which is back in play after a shock bondholder wipeout during the Credit Suisse rescue this year.

Francesco Castelli, head of fixed income at Banor Capital, said the positive outcome of Italian debt rating reviews gives investors a period of at least six months in which they need not worry about decisions by credit marking agencies.

“Buoyed by the past two months’ rally in Italian government bonds, which has seen risk premiums [over safer German peers] compress, Italian banks have refinanced their debt including the riskier and more challenging type such as AT1 paper,” Castelli said.

“We expect this trend to continue next year.”

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