Tempting government bond yields and inflation worries will attract more Italian investors to fixed income products in 2023, offering some bailout to Italy’s finance ministry once the ECB withdraws its support. The next year is expected to be difficult for over-indebted Italy as the ECB begins to cut its bond portfolio. Rome’s medium- and long-term gross financing needs are 310-320 billion euros, compared to 278 billion in 2022, the Italian finance ministry recently announced. In order to strengthen relations with small savers, the ministry said it could promote new targeted bonds to the market. In 2022, he promoted two government bonds worth more than 21 billion euros that are linked to inflation, 75% of which were bought by small savers. Higher yields are considered “key” for retail investors, said Luca Mezzomo, director of macroeconomic analysis at bank research at Intesa Sanpaolo. As Italy’s 10-year bond yields are expected to remain above 4%, at least in the short term, analysts say small savers are expected to buy more bonds, but not enough to replace the ECB’s massive firepower.

“Retail investors can play a more important role compared to 2022,” said Luca Cazzulani, director of strategic research at UniCredit bank. At the same time, Italians are being cautious after repeated falls in international capital markets that have forced them to deposit more money in bank accounts. This trend was exacerbated by the pandemic, when restrictions on economic activity and movement curtailed consumption. In the second quarter of 2022, Italian household bank deposits accounted for 30.6% of their total financial assets, compared to a historical average of 22.8%. “This is a record since the creation of the currency union,” Mezzomo said, adding that some of that liquidity could probably be lent to Italy. According to UniCredit, the ECB has bought about 40-45 billion euros worth of Italian assets this year. Instead, Cazzulani predicts net sales of 15-25 billion euros in 2023, depending on how Frankfurt calibrates the tightening policy among eurozone countries.