Italy’s 50-year bond: an ill omen?

Italian Premier Matteo Renzi presents budget plan with Finance Minister Pier Carlo Padoan
Italy’s success with its 50-year bond may show Prime Minister Matteo Renzi (L) and Finance Minister Pier Carlo Padoan have given up on shrinking public debt (source: dpa)
  • Success of Italy’s 50-year bond shows investors see persistent low inflation and growth
  • Longer debt maturities may become more common among weaker eurozone members
  • Trend may reveal monetary, fiscal authorities’ lack of confidence as they offload risk to investors

In early October, the Italian government issued a 50-year bond bearing a coupon close to 3 percent. It was a stunning success. This report considers the possibility that this bond sale is part of a more ambitious strategy pursued by the governments of the eurozone countries as well as by the authorities in Brussels – all of whom are bracing for trouble ahead.

Selling long-term debt shifts at least part of the bill for any future misfortunes to the bondholders, at very little cost. Rather than signaling confidence in a future with no major disruptions, these bond issues reveal that some key institutional players fear the worst. Accordingly, they are now unloading default and inflation risk to investors who are looking for better returns on their fixed-income portfolios.

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