Italian investors snap up inflation-linked bond Italians have given a vote of confidence in Mario Monti's government of technocrats by subscribing in large numbers for a novel inflation-linked bond targeted directly at retail investors. Orders for the four-year bond, which could be bought online without paying bank commissions, reached €7.29bn, the Milan stock exchange reported on Thursday evening after the close of a four-day offer period. The coupon was set at 2.45 per cent. The bond is tied to a domestic inflation index and remunerates investors by adjusting the capital for inflation every six months and paying this off together with the half-yearly coupon. Italian inflation is running at about 3.3 per cent. The treasury had not set a target, although analysts had anticipated a sale of about €1.5bn. Our families have shown appreciation for this product. This is in line with normalisation of our market. Investors have returned to believing in our public debt," said Vittorio Grilli, deputy finance minister and former head of treasury. Nicholas Spiro, a sovereign debt analyst in London, said: "This is the Monti factor at work." He said the treasury had "cleverly lured" investors into longer-dated paper at a time when there was still a dearth of foreign buyers for bonds of longer maturities. Italian officials insist foreign investors are returning. Maria Cannata, head of the treasury's debt management office, said this month, in announcing the new index-linked product, that traders" accounts of foreign investors returning to Italian bonds were "amazing." The successful sale follows sharp falls in Italian bond yields this year, driven by €255bn euros of cheap three-year liquidity tendered to Italian banks by the European Central Bank. Yields on Italian 10-year bonds have fallen by more than 200 basis points, dropping to around the 5 per cent level this month and outperforming their Spanish equivalent. Nonetheless, a market correction this week, driven in part by a focus on Italy's weak economic fundamentals, has seen the yield gap between Italian and German sovereign bonds widen again. Analysts say the threat of strike action by Italy's largest union in protest against Mr Monti's labour market reforms has not had a marked impact on market sentiment so far, but there are worries that the controversial reforms could undermine the prime minister's broad support in parliament. Paola Leocani, capital markets partner in Allen & Overy, a law firm that assisted Banca IMI and Unicredit as appointed dealers, said the bond issue had been more successful than expected and had mainly attracted retail as well as some institutional investors. Holders of bonds for their full four-year maturity would receive a 0.4 per cent premium and the treasury was expected to launch another issue before the summer, she noted. Italy's recession-hit economy - burdened by a public debt of more than €1.9tn, or 120 per cent of gross domestic product - is forecast by the Bank of Italy to contract 1.5 per cent this year. Officials say, however, Mr Monti's austerity package imposed in December is on track to eliminate the budget deficit by the end of next year.