Exclusive-Italy working on new inflation-linker for institutional investors, debt chief says

By Sara Rossi

MILAN, June 12 (Reuters) - Italy is working on a new bond aimed exclusively at institutional investors to tap growing demand for inflation-linked products among banks, funds and insurers, the Treasury's debt chief said.

With public debt above €3 trillion ($3.5 trillion) - the highest in the euro zone - Italy is under constant pressure to bolster and broaden its investor base.

"The Treasury is thinking about an instrument dedicated to institutional investors and linked to domestic inflation, with a similar structure to our BTPs (government bonds) linked to euro zone inflation," Davide Iacovoni, director general of public debt, told Reuters.

He said the bond could be issued next year, depending on market conditions, though no decision has been taken.

Financial institutions hold 63% of Italy's debt, split evenly between domestic and foreign investors, compared with 15.4% held by small savers, Bank of Italy data shows.

TAILORING PRODUCTS FOR DIFFERENT MARKETS

The European Central Bank raised interest rates on Thursday for the first time in nearly three years to curb euro zone inflation, which reached 3.2% in May. Italian inflation stood at 3.3% in the same month.

The new bond would be the first domestic inflation-linked product designed specifically for institutions, as the Treasury expands its range of targeted instruments.

Rome introduced "BTP Italia" bonds linked to domestic inflation in 2012 for both retail and institutional investors. It will issue a similar "BTP Italia Sì" from June 15 to 19, for the first time to retail investors only.

Iacovoni forecast strong demand for the retail bond, which will have a five-year maturity and pay a premium over domestic inflation. In a 2023 BTP Italia issue, retail investors bought €8.6 billion of another five-year bond.

Demand was weaker at the last BTP Italia sale in 2025, which raised €6.5 billion for a seven-year bond.

Since the 2012 euro zone debt crisis, the Treasury has developed several bonds tailored to small investors, betting they are less likely than foreign investors to pull funds during market stress.

FOREIGN DEMAND REMAINS KEY

Maintaining strong foreign demand remains central to the Treasury's strategy, Iacovoni said, noting holdings by overseas investors have risen strongly over the past two years.

These include many "buy and hold" investors - such as central banks, sovereign wealth funds, insurers and pension funds, he said, providing a stable base of demand.

"These investors have a medium- to long-term outlook and are therefore fully able to support a period of market stress," Iacovoni said.

The Treasury raised €18 billion this week in a dual-tranche syndicated sale, with foreign investors buying 83.7% of a reopened seven-year BTP and 89% of a tap of 30-year BTPs.

Italy has already covered 55% of its estimated €360 billion medium- to long-term funding needs for the year, Iacovoni said.

Average issuance costs stood at 2.91% in the first half of 2026, up from 2.75% in 2025, he added.

($1 = 0.8671 euros)

(Reporting by Sara Rossi. Editing by Gavin Jones and Mark Potter)