Plans to sell off state assets keep Italy bond yields low

Xinhua, Rome :
Italy’s Minister of Finance Fabrizio Saccomanni turned heads in financial markets Thursday when he said Italy would raise as much as 10 billion euros (13.6 billion U.S. dollars) over the next two years by selling off state assets, sparking new interest in Italian bonds.
But analysts warned that despite bonds yields’ new home below the 4-percent threshold so far this year, that the country was not out of the danger zone economically.
Saccomanni’s remarks, made at the World Economic Forum in Davos, Switzerland, turned heads. It was not because of the value of the privatizations-in November, Prime Minister Enrico Letta estimated Italy would raise 10 to 12 million euros in 2014 alone, compared to the 8 to 10 billion euros over two years Saccomanni predicted-but because of what he indicated would be sold.
Among the state-owned assets to be shopped around: minority stakes in former state- run companies like energy giant Eni, plus air traffic control operator Enav, and, most surprisingly, a 40-percent stake in Poste Italiana, the national postal service that has morphed into one of the country’s most high visibility financial institutions.
“We’ll start with that and then we’ll see,” Saccomanni said, hinting a larger stake could be sold off later on.
Investors liked the news, in part because it illustrated a level of trust in financial markets to get a fair price for the assets (smaller privatization plans have been scuttled in the past in fear of soft financial markets), and in part because the sales would help pay down debt.
Paying down debt in this way is important, because it would relieve pressure on the government to further raise taxes or reduce spending-and thus slow economic growth – – in order to keep the debt from expanding.
Italy’s ten-year bond closed trading on secondary markets Thursday at 3.86 percent, meaning it’s been below the 4-percent level every trading day since opening the year Jan. 2 at 3.97 percent.
That’s the first time yields have been so low since a brief period last May, and the longest time they’ve stayed below the 4-percent threshold since 2010.