Via Peter Tchir of TF Market Advisors [8],
Italy has issued €157 billion of debt between November of last year and the end of last week. This is direct Italian government issuance and doesn’t include any of the debt the government has guaranteed in the meantime, which seems to be at least €70 billion more, but hey, who counts guaranteed debt.
[9]
Of the €157 billion that has been issued, about €122 billion matures within the lifetime of LTRO. So over 77.5% of Italian new debt is 3 years and in. In fact, at least 56% was issued with maturities of less than a year. So in spite of LTRO, in spite of a big rally in Italian yields, in spite of having a technocrat in charge of the country, they continue to issue well over half their debt so that it will mature within a year from now. That means they will be continuously rolling over debt. The prudent country would be trying to extend maturity, not shrink it.
Another interesting statistic, is that 65% of their issuance has been zero coupon bonds. I’m not sure how they are accounted for, but I’m guessing that is done at least in part to show smaller near term interest expenses (or it could be a function that they rely so much on t-bills). The T-bill market in Europe is unique as even Greece was able to issue t-bills throughout the entire crisis, so a reliance on t-bills shouldn’t be viewed as anything exciting, in fact is another potential sign of how weak the market really is below the surface.
It looks like Italy is too worried about keeping their cost of borrowing down, at the risk of having to roll in an environment that might not be as “accommodating” as the market is today.
For all the talk about “contagion” and more importantly “firewalls”, the single most important, and simplest step would be to extend maturities. But as each country plays games trying to pretend to be trying to meet some 3% annual deficit number, they sacrifice real systematic risk reduction for a quarter or two’s worth of numbers.
The market celebrates each “successful” auction, but we should be focusing on what they are actually issuing. If Germany is serious about a firewall, they or the ECB, should be encouraging countries to pay up and borrow longer, and certainly push out to the edge of the LTRO maturities rather than so much within a year.
[10]
Individual bond issue details. For some bonds, I could not determine exact maturity from data I had, so I assumed they were the longest dated bonds that matched the coupon and year that I had. I/L is for inflation or cpi linked bonds.
[11]