MNI: Italy Sees Pick-Up In Foreign Demand For Bonds -Officials

Italy is seeing better-than-expected demand for its bonds from foreign investors, partly due to a switch from U.S. Treasuries, finance ministry officials told MNI, adding that could this could have implications for its 2026 borrowing plans.

“We have been detecting this growing interest in the past two years,” one source said, noting this comes despite the Italian Treasury’s push to cultivate a more retail-focused domestic investor base through instruments like BTP Valore and BTP Più.

The recent sell-off in U.S. Treasuries following April 2 may reflect deeper trends that have been developing over a longer period, the sources said. These include a broader rebalancing of global portfolios amid geopolitical shifts and growing concerns about U.S. fiscal sustainability, which has prompted some investors to diversify their sovereign bond holdings, they added.

This increased interest was not expected by Italy’s finance ministry and will trigger no more than minimal changes to this year’s funding plans, though it could have an impact on those for 2026 if the trend continues. For the moment the Italian government has no intention of diverting from its usual pattern of at least one dollar issuance a year, and is not looking to diversify into different currencies such as the yen, the sources said.

IMPROVED PERFORMANCE

Italian debt has been one of the higher-yielding options within the euro area, due to investors’ perceptions of political and fiscal risk. But in recent years, improved public finances, strong demand from households, and a more consistent communication strategy from the Treasury have helped reduce volatility, officials said, adding that European Central Bank bond purchases have also played a role in anchoring spreads despite tightening.

The ECB’s tightening cycle from 2022 until 2023 did not raise Italy’s average debt servicing costs as much as initially feared—a result of various factors, including these underlying structural shifts, a prudent fiscal approach, and support from the ECB, they added. (See MNI SOURCES: ECB Heads For June Cut, But Debate To Be Lively)

Italian officials expect that both the euro area as a whole and Italy in particular could benefit from an enhanced international role for the euro, helping to reduce financing costs.