Rome warns its financial giants: Italy first! – POLITICO #ItalyFinance

And foreign investors, who are typically more fickle, now hold over 30 percent of Rome’s outstanding debt, according to Bank of Italy data.  As such, Rome now has a group of investors that it feels it has less influence over. Morningstar analyst Javier Rouillet said it’s “reasonable” to want a more “diversified” investor base in that context.

Politicians have a longstanding, if mistaken, belief that local firms are more trustworthy because they buy bonds for “patriotic” reasons, said two people familiar with the government’s thinking.  It’s a belief that’s wilfully exploited by local lobbyists pushing for softer regulation, said one of the people, even though the reality is that Italian banks and insurers — like their foreign competitors — buy Italian bonds because of the “wonderful risk/return profile — not to please the government.”

“Having our debt in domestic hands is a goal in order to keep interest paid in the Italian economy,” said one lawmaker familiar with the government’s thinking, “Not that [financial institutions] do what the government asks, but there has always been a clear domestic bias in Italian-owned investment firms.”

The Ministry of Economy and Finance will certainly need all the help it can get this year. Its current plan is to sell up to €350 billion in bonds — nearly €1 billion a day — to fund the 2025 budget and to refinance all the old bonds that are maturing. According to Barclays analysts, that includes €73 billion from the European Central Bank, which — crucially — is now reducing its holdings after a decade of asset purchases. The Eurosystem, through the Bank of Italy, held over a quarter of the government’s bonds at the end of September.

This comes as the mood in European debt markets begins to darken. Across the world, borrowing costs are being dragged higher by signs that the U.S. economy is still going strong and doesn’t need any more interest rate cuts from the Federal Reserve. And that’s before considering the possible inflationary impact of President-elect Trump’s second term.

In the last six weeks, Italy’s borrowing costs have risen by 0.6 percentage points. If they were to stay at the current level of over 3.8 percent, then its debt burden would grow faster than the economy servicing it, AXA Investment Management chief economist Gilles Moëc wrote in a note to clients on Monday.