ANNO ACCADEMICO 2018-2019

SCIENZA DELLE FINANZE c.a.

PROF. GIUSEPPE EUSEPI

Lezione n. 32

10/12/2018

Lezione tenuta dal Dott. Fabrizio Tesseri (Dirigente Uffici II e VI,

Direzione II – Debito Pubblico, Ministero dell’Economia e delle

Finanze)

Update on Italian Public Debt

November 2018

Italian Public Debt in figures 1

Central Government debt: breakdown by instrument as of October 2018

Average Life: 6.78 years

Source: MEF

3

Securities Amount (€ Mln) %

BOTs 112.863,00 5,59%

Flexible BOTs 0 0%

CCTeu 139.345,74 6,97%

CTZs 55.614,58 2,13%

BTPs 1.409.287,81 71,78%

BTPs €i (indexed) 153.089,36 7,70%

BTP Italia (indexed) 70.637,63 3,48%

Atypical BTPs 313,66 0,02%

Foreign Debt in Euro 39.137,60 2,21%of which ISPA Bonds 8.631,61 0,45%

Foreign Debt Currencies 2.269,28 0,11%

Total Amount 1.982.558,65 100%

BOTs 5,69%

CCTeu 7,03%

CTZs 2,81%

BTPs 71,10%

BTPs €i (indexed)

7,72%

BTP Italia (indexed)

3,56%

Foreign Debt €uro

1,97%

Foreign Debt Currencies

0,11%

Evolution of debt composition by type of instrument and debt average life

Source: MEF

4

* Average life September 2017: 6,85

7,20

6,38

6,52 6,76

6,90

6,78

0

1

2

3

4

5

6

7

8

0%

10%

20%

30%

40%

50%

60%

70%

80%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sep-18

Years Floating rate (BOT+CCT, LHS) Fix rate (LHS) Inflation Linkers (LHS) Average life (RHS)

(Average life October 2017: 6.84)

Oct- 18

5

Interest rate risk: ATR and % 1y refixing*

* The Economic and Financial Sub-Committee on EU Sovereign Debt Markets (ESDM) has agreed an harmonized set of risk indicators in order to monitor market risks on a quarterly basis. Under criteria defined by the ESDM, inflation linkers are included within floating debt. Data also include Postal Bonds.

years %

Source: MEF

29,41

29,78

6,19

6,12

5,85

5,90

5,95

6,00

6,05

6,10

6,15

6,20

6,25

6,30

6,35

28

29

30

31

32

33

Refixing Risk 1Y (LHS)

Average Time to next refixing(RHS)

6

Sensitivity to interest rates shocks (parallel shift)

Given the current debt structure, expected sensitivity of interest expenditure to a 100 bps parallel shift of the whole yield curve turns out to be substantially unchanged since the previous sensitivity analysis

Interest expenditure/GDP

Years Update Sept. 2018 Update Apr. 2018

1st 0,11 0,11

2nd 0,27 0,25

3rd 0,39 0,36

Source: MEF, September 2018

7

Refinancing risk: Average Life and % 1y refinancing*

*The Economic and Financial Sub-Committee on EU Sovereign Debt Markets (ESDM) has agreed an harmonized set of risk indicators in order to monitor market risks on a quarterly basis. Under criteria defined by the ESDM, inflation linkers are included within floating debt. Data also include Postal Bonds.

years %

Source: MEF

14,68

15,83

6,86

6,78

6,4

6,5

6,6

6,7

6,8

6,9

7

14

15

16

17

18

19

20

Refinancing Risk 1Y (LHS)

Average Life (RHS)

8

Trends in average debt cost, cost at issuance and interest expenditure

Source: MEF, ISTAT, (National Bureau of Statistics

Source: MEF

9

Bond redemptions Jan. 2018 – Dec. 2020 (as of October 2018)

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2018 2019 2020

mln.€

BTPs BTP€i BTP Italia CCTs CTZs Foreign Debt

Breakdown by holders : foreign component is declining but without any major shift so far

(data as of July/August 2018)

Source: MEF, Bank of Italy

10

Central Government Securities = 84.9% of General Government Debt

Central Government securities (marketable)

Monthly changes in total Central Government securities (marketable) held by not residents*

Central Bank 19,00%

Resident MFIs 17,45%

Other resident FIs 22,44%

Other Resident 5,48%

Non Resident 35,63%

1,985 € Bln

* Data are derived from Bank of Italy’s Bullettin on «Public Finance:s: Borrowing requirement and Debt»

Source: MEF based upon Bank of Italy dataset 11

Central Government securities: breakdown by holders as of June 2018 (trends)

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

100,00%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jun-18

€ Bn CG Securities (marketable debt)

Central Bank Resident MFIs Other resident FIs Other Resident Non resident

Source: MEF based upon Bank of Italy dataset - Figures may not add up exactly due to rounding 12

Government securities breakdown by asset and investor

4Q2017

BREAKDOWN BY ASSET AND INVESTOR - 4Q2017 BTPs BTP€is BTP ITA CTZs

CCTs BOTs

Not resident 34% 18% 80%

Insurance Co. and Pension Funds 17% 14% 1%

Banks 14% 39% 11%

Households and Corporate 9% 1% 1%

Financial Institutions 6% 7% 7%

Central Bank 20% 21% 0%

100% 100% 100%

Public Debt management in 2018 2

Debt Policy for 2018 (I)

14

Scheduled redemptions in 2018 are about € 30 bn less than in 2017. This is the legacy of past issuance choices as well as of liability management transactions carried out in the recent past as exchanges and buybacks, that were heavily focused on 2018-19 redemptions.

Considering that net borrowing requirement is lower that in previous year, total issuance volume of medium-long term securities will be in the region of 250 bn euros. As of the end of October roughly more than 90% of the 2018 funding plan has been completed

BOT issuance volume has been kept in line with that of 2017 – or slightly more – thereby bringing the stock at the end of 2018 more or less to same level as of 2017 year-end (i.e around € 106Bn)

In the nominal space, issuance of BTPs has been predictable over the all segments up to 10 years, with some more weight on the 7-10 years’ sector vs the 3-5 years’ one, also to take into account the increase of volatility in this segment since May

On the nominal long end, supply has been spread out on all the lines (15-20-30-50 years) according to market conditions. Total share of long end issuance will continue to be relevant as in recent years.

Debt Policy for 2018 (II) and initial toughts for 2019

15

On floaters, supply has been kept regular and at adequate size taking in account redemptions in order not to significantly alter the stock at year-end, thereby keeping interest rate risk under control

In the inflation segment:

A new 5 years introduced in March

After the issuance held in the month of May, a further BTP Italia issuance is scheduled for November

Derivatives: following the entering into force of a specific legislative framework, a bilateral CSA system is being implemented, allowing counterparties to ease meeting regulatory requirements and to lower possible FX hedging costs (see following point)

For 2019 more focus will be given to retail investors (even, if possible, with new tailored instruments) and foreign currency issuance (thanks to the introduction of CSA as mentioned in the previous point)

Participation to nominal BTP auctions : breakdown foreign/domestic buyer

*These data are collected by the Treasury from Primary Dealers in occasion of nominal BTPs auctions. Since representing flows recorded at the time of auctions, they are not comparable to data about stock owned by investors recorded at Bank of Italy.

16

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Ja

n-1

6

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

De

c-1

6

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-1

7

De

c-1

7

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Italian buyer Foreign buyer

The role of buy-backs and debt exchanges in managing redemption profile

17

Buy-backs and debt exchanges are steadily used by MEF as a tool of the overall Debt management risk policy, as they may actually contribute to reduce refinancing risk and smooth redemption profile.

Buy-backs are also used as a way to contribute to an adequate liquidity and efficiency of the secondary market especially in periods of market stress (like since mid-May this year)

Securities to possibly buy back are selected by Treasury on several criteria including redemption profile, bond liquidity (aiming to avoid negative impacts in the secondary market) and impact on outstanding debt (bonds traded at par or below maximize the effects in terms of outstanding debt reduction). Buyback are performed via a competitive auction or a bilateral transaction

Exchanges are performed via an exchange auction or via electronic trading system, allowing the Treasury to directly operate on the secondary market

Impact of all buy-backs and exchange transactions on future redemptions profile

18

Source: MEF

1.079

2.421

809

440

2.520

188

2.387

1.496

2.687

2.713 2.848

5.809

429

2.935

550

2.948 640

1.451

1.946

3.199

3.672

976 288

1.406

2.783

1.777

1.823

1.831

250

450 1.000

350

300 1.325

763

750 471

773

608

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

mln.€ After exchange and buy-back transactions Treasury buyback

A proactive approach to face increasing volatility: buy-backs and exchange transactions in 2018

19

Source: MEF

• 2018 Bilateral Buybacks

• 500 mln (BTP 2019, 2020 area) on May the 31st

• 700 mln (BTP 2020, CCTeu 2019-20 area) on June the 22nd

• 950 mln (BTP 2020, CCTeu 2019-22 area) on August the 3rd

• 2018 Exchanges on electronic platform

• 2000 mln (issuance of a BTP 21, buyback of BTP 2018-19 area and CTZ 2018-2019 area) on April

the 18th

• 2100 mln (issuance of a BTP 28, buyback of BTP 2019-20-21 area) on October the 3rd

• 3800 mln (issuance of BTPs 25,26,28,29 and 46, buyback of BTP Italia April 2020) on October the

18th

• 2018 Public Buybacks • 2.750 mln (BTP€i 2019, CCTeu 2020, 2022) on September the 7th

Market data 3

Liquidity of the secondary market

21

10 yr BTP bid-ask spread, b.p. (January 2016-September 2018)

Source: MTS Italy interdealer platform

0,00

5,00

10,00

15,00

20,00

25,00

Secondary market volumes (€ Mln)

* Data collected from Italian primary dealers only. Single counted.

22

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

200.000 MTS Volumes

0

50.000

100.000

150.000

200.000

250.000

300.000

350.000

400.000

450.000Monthly Volumes HRF out MTS*

Repo market volumes

23

0,00

0,50

1,00

1,50

2,00

2,50

3,00

Trill

ion

s

Special Repo General Collateral

www.publicdebt.itit

www.mef.gov.it

24