By Emese Barrtha
Foreign investors are increasingly interested in Italian floating rate notes to diversify their portfolios and protect them from rising yields, inflation, and tightening central banks’ monetary policies, Maurizio Gzzi and Benjamin Moulle, Credit Agricole CIB, told Dow Jones Newswires.
Italy raised $5 billion ($5.50 billion) Wednesday in October 2030 floating rate notes indexed at six-month Euribor. This syndicated deal attracted EUR10.7 trillion in demand from more 100 investors, the Italian Treasury said. The new debt was priced at 78 basis points higher than six-month Euribor rates. Investors can buy it at a discount of approximately 2 basis points.
“CCTeu has been a part Italy’s debt financing tools, accounting for 6.6% of the outstanding debt or EUR150 billion,” Mr. Gozzi (head of debt capital markets and financial institutions and sovereign and supranational agencies (SSA) for Italy at CACIB), stated. “But because of its relative rarity & liquidity, there was more international demand for this instrument.”
CCTeus are sold by the Italian Treasury once per month as part of the month end bond auctions. However, it may decide to introduce new CCTeu line via syndication similar to the launch long-dated conventional bonds known as BTPs.
These floating rate notes were initially issued with maturities of five to seven years. However, foreign investors are increasingly interested in them, Mr. Gozzi stated. It was domestic demand that allowed the Italian treasury in 2021 to gradually increase maturity to eight years with a CCTeusyndication and again Wednesday to issue the new issue.
The Wednesday transaction’s buyers’ statistics show that 78.5% of the issue was purchased by domestic investors with 21.5% going overseas.
Mr. Gozzi said that foreign investors typically take up one-third to three percent of the syndicated CCTeus volume. He said that although originally a product that was mainly purchased by Italian bank treasuries it is now gaining popularity with foreign investors.
Mr. Gozzi noted that floating rate notes made in Italy are attractive because they have low volatility, especially when compared with conventional government bond. Their scarcity, in the context where only Italy currently issues this type of instrument within the eurozone, is another attractive feature.
Benjamin Moulle from CACIB’s SSA syndicate said in the interview that floating rate notes can be used as a hedge in times when inflation is high, rates are rising, and central banks tighten monetary policy.
“We are entering into an entirely new cycle from the central bank’s side after years of accommodative policy and we are getting into very high inflation,” Mr. Moulle stated. “The European Central Bank is going to act on inflation sooner or later.” CCTeus provides a very good protection against central bank interest rate rises, he explained.
He said, “It’s the perfect product to hedge against higher yields.”
CACIB was one of the bookrunners in the CCTeu transaction.
Emese Bartha can be reached at [email protected]
