Italy can face upcoming debt auctions without tapping external aid, helped by a pick-up of interest from foreign investors, the head of the debt management agency in the economy ministry was quoted as saying in an interview published on Saturday.
Maria Cannata said Italy was in a stronger position than last year following austerity measures and structural reforms passed by the government of Prime Minister Mario Monti. "A lot depends on Europe, not only on our country, but Italy can easily do it. There is demand for our paper, coming also from abroad," she told Il Sole 24 Ore newspaper in an interview.
Moody's cut Rome's sovereign debt rating by two notches last week, fanning concerns that August may be a bad month for Italy, which has seen a steep jump in its borrowing costs and a drastic widening of risk premiums on its debt. Fears of contagion from the turmoil in Spain and Greece have grown, a deep recession threatens Italy's efforts to cut its 2 trillion euro debt pile and political uncertainty has made investors increasingly nervous ahead of next year's elections.
Yields on 10 year BTPs are over 6.2 percent, more than 500 basis points higher than the yield on safer German Bunds, reflecting market fears about the sustainability of a debt burden second only to Greece in the euro zone. But Cannata said government economic reforms including an overhaul of the pension system, Italy's approval of the European Union's fiscal compact which imposes tougher budget controls had started to help investor confidence. With safe haven German and French bonds now flirting with negative yields, Italy would prove more attractive, she said.
"In the medium to long term, Italy will improve and foreign investors are beginning to get this," she said. "The risk/return ratio of BTPs is at a level that makes them unique in the eurozone," she said. Asian investors who had not been seen buying Italian government debt for a long time, have been returning to the market, Cannata said adding that "always very prudent" Japanese investors have been buying BTP bonds.
Italy expects 700 million euros to be injected in September into a special fund for debt reduction, underlining the government's drive to control public finances, she said. Italy had already met 62 percent of the 450 billion euro issuance target for this year - at the upper end of a previously announced 440-450 billion euro range - having raised 280 billion euros, and had enough liquidity this summer.
The Treasury does not plan to issue three-month BOT bills in August but can return to them in autumn, she said. Asked if the Treasury planned to reduce volumes of issuance in August, Cannata said it would not be efficient because the volumes would have to be increased afterwards.