Italian analysts find it increasingly challenging for the country to encourage small domestic savers to invest more in the vast public debt; however, they note that foreign investors, attracted by Italy's political stability and improving financial situation, could offset any funding gaps. Since 2012, Italy has been targeting retail investors, believing they are less likely than foreigners to withdraw funds during market turmoil. This strategy has been successful, raising around 245 billion euros through dedicated bond issuances for this sector. The share of Italy's 3-trillion-euro debt held by small savers rose to nearly 15% in November, up from 13.5% a year earlier. In contrast, foreign investors hold 31% of the debt.
Analysts predict a decline in interest from ordinary citizens in these bonds, given the erosion of Italians' savings due to rising inflation and decreasing ECB interest rates. They anticipate limited potential for future investments as most available savings from retail investors are likely already allocated. Analysts suggest that Rome might not be able to match the almost 30 billion euros raised in retail bonds in 2024, down from nearly 44 billion in 2023. UniCredit strategists estimate that households' contribution to Italy's financing needs in 2024 will be around 50 billion euros, significantly lower than the 130 billion in 2023.
Foreign investors are seen as a crucial funding source, attracted by Italy's high bond yields, political stability, and shrinking budget deficit. Recent data indicates growing foreign interest, with holdings of Rome's bonds reaching a record high of 771.421 billion euros in November. Analysts expect this trend to continue, especially if Italy's fiscal consolidation efforts succeed. Despite positive signs of stability and fiscal progress, Italian bonds still offer higher yields than other euro zone countries due to perceived risks. Analysts caution that Italy remains vulnerable to market instability in the future. Italy's policymakers view the rise in foreign debt purchases as a vote of confidence in their economic management, welcoming increased demand from foreigners.
Analysts project further consolidation of foreign holdings, anticipating that foreign investors are likely to increase their investment in Italian bonds. Italy's fiscal consolidation efforts might lead to a debt upgrade from ratings agencies, attracting more foreign interest. Insurance and pension funds may seize opportunities in the Italian bond market to purchase longer-dated bonds due to the relatively steep Italian curve. In November, foreign investors held 31% of Italy's total debt, up from 27.7% a year earlier.