(Bloomberg) -- Italians are buying fewer bonds targeted at individual savers, raising questions over the extent to which the government can rely on this funding source in future.

Households placed orders of around €6.6 billion ($7.1 billion) for so-called BTP Valore bonds in the first two days of a sale that ends Friday, and demand on the third day has so far amounted to about €600 million. That compares with an average of €10.3 billion in the first couple of days of the previous three offerings, which raised about €18 billion each.

Italian citizens emerged as a major source of funding for the government since 2022 as a rapid rise in bond yields prompted a buying frenzy, with the returns outstripping the rates available on bank deposits. But Bank of Italy data through January 2024 show the pace of buying has slowed since last October. 

Analysts are concerned about weakening demand from households, which are seen as a stabilizing force in the nation’s bond market. Hints that appetite may be waning could put yields under pressure, particularly if the Treasury has to increase its supply of bonds to professional investors.  

“A smaller take-up for this week’s BTP Valore than the €17-18 billion range so far is a near-term risk for BTPs due to higher supply implications,” said Aman Bansal, a rates strategist at Citigroup Inc. in London. 

A spokesperson for Italy’s Ministry of Economy and Finance said the government had not expected to replicate the success of previous sales, and added this was a “special offering” for buyers who didn’t get a chance to participate in the last offering two months ago.

For now, Italian bonds are showing little sign of strain: the 10-year yield premium over Germany, a common measure of risk, is close to the lowest level in two years, at about 135 basis points. The prospect of interest-rate cuts as soon as June is a tailwind for the whole euro area sovereign bond market, while BTPs may be benefiting from a step-up in overseas buying over the past year. 

The bonds on offer this week have a six-year maturity. The Finance Ministry previously set a minimum coupon at 3.35% for the first three years and 3.90% for the following three years.

 

--With assistance from Alessandra Migliaccio and Zoe Schneeweiss.

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