The 19th issue of the Btp Italia which protects against inflation is underway: sprint start
A “sprint” start for the nineteenth issue of the BTP Italia, the government bond indexed to the inflation rate, placed on the market today 6 March 2023: orders totaling 3.6 billion euros were recorded on the first day, higher than the 3.2 billion of the issue mid-November (for a total of 132,334 signed contracts). The first phase of the placement period, dedicated to individual savers, will take place until Wednesday 8 March 2023, unless early closure (it should be remembered that for those who subscribe for the security in this phase and hold it until the deadline of 14 March 2028, it is envisaged a loyalty bonus of 8 per thousand).
But what is the new government bond that protects against inflation? What are its characteristics and what is new compared to past placements?
Read also Ferruccio de Bortoli’s analysis: Inflation, will the BTP Italia be enough to defend our savings?
The new BTP Italy
The new BTP Italia has a minimum annual (real) coupon set at 2%.The definitive one, on the other hand, will be established – as the Mef explains – with subsequent communication at the opening of the fourth day of issuance, on the morning of Thursday 9 March and can be confirmed or revised upwards.
The last bond of this type, the BTP Italia launched in November 2022, raised around 12 billion euros, confirming the interest of these instruments among the public of savers and families to whom it is addressed. Also because the cost-of-living indexation, which is eroding the savings that Italians have in their current accounts, is doing the Btp Italia good, as can be seen from the yields of the latest issues (an example: the Btp Italia n.17, issued in June 2022, with a rate of 1.6%, at the end of the year it detached a six-monthly coupon of 7.23%). Remaining cautious in a scenario of price volatility, one can nonetheless imagine that with inflation already captured by the General Price Index (NIC) for 2023 of 5.5% and a Consumer Price Index for blue-collar households and employees, net of tobacco (Foi, to which the Btp Italia is connected) of a few decimals below, the return for this year on an annualized basis will be around 7-8% (more likely 7.2-7.3%), even in the unlikely event that prices are frozen in March.
Having said that, let’s now take a closer look at what Btp Italia are, how they differ from the “traditional” ones and what are the technical indications for those who want to buy them.
Technical details: the purchase (also) online
Let’s start with the technical details for those intending to buy Btp Italia.
The security, with accrual on March 14, 2023 and maturity on March 14, 2028is – as mentioned – a Btp indexed to the Italian inflation rate (Foi Index), with coupons paid every 6 months together with the capital revaluation due to inflation in the same semester.
The First Phase of the placement period, dedicated to individual savers and similar, will take place from Monday 6 March to Wednesday 8 March 2023, unless early closure.
The Isin code of the security for this First Phase is IT0005532715. The inflation index number calculated on the entitlement and settlement date of the security is 118.24194. For those who subscribe to the security in this phase and hold it until maturity (March 14, 2028), there is a loyalty bonus equal to 8 per thousand of the invested capital.
For subscribing to the Btp Italiain addition to going to the bank or post office, it is possible also the online purchase through one’s own home-banking (usually with trading function enabled).
The Second Phasededicated to institutional investors, will take place on Thursday 9 March from 10 to 12. The issue will take place on the Mot (the Telematic Market of Bonds and Government Securities of Borsa Italiana) through Intesa Sanpaolo spa and UniCredit spa – Dealer of the transaction – and Banca Akros spa and Cre’dit Agricole Corp. Inv. Bank – Codealer of the transaction – from 6 to 9 March 2023. The settlement date of all executed purchase orders is unique and coincides with the accrual date .
Returns: thanks to inflation, it can fly even above 20%
In the last 8 years, the gross yield of Italian BTPs has been remarkable, even exceeding 20% (see table). This is the case of the Btp Italia issued in April 2015 and which expires next April 2023: those who had invested 1,000 euros in it at the time of subscription will soon find themselves 210 euros gross more. It is the good effect, at least for the Btp Italia of inflation, to which they are hooked. In fact, the “traditional” BTPs have returned 0.99% in one year, while Italian BTPs recorded an average annual gross yield of 2.45% (and this is more or less true for all 10 Btp Italia bonds still on the market, indeed some are even better than this). Only when inflation passes from 6% to 2% (which certainly won’t happen in the next few months), will the “traditional” BTPs become more profitable again. In the meantime, the Btp Italia will continue to protect the purchasing power of their owners.
What are BTPs and what are BTPs Italia?
Every nation has to face expenses: from civil servants to infrastructure, from social assistance to education. These expenses are partly financed by tax revenue, i.e. taxes paid by taxpayers. The remainder is financed with bonds, government bonds, which can be purchased by savers as a form of investment. In Italy we have three types of government bonds: the Bot (treasury bills), the Ctz (zero-coupon treasury certificates) and, of course, the Btp (multi-year treasury bills). The latter have a duration of between 3 and 50 years and their yield is given by a coupon rate. The BTPs are always issued at 100 and their price at maturity always returns to 100 (as for all bonds), the coupon that detaches is gross and is subject to taxation of 12.5% and is paid directly into the investor’s current account every six months. At the moment there are BTPs maturing between 2025 and 2028 which can be purchased for less than 100 and with the coupons they allow an annual return of around 2.5-3% For ten-year BTPs (maturity 2032) the yield between price and coupons is around 4% per year.
Btp Italia are the first government bonds indexed to Italian inflation, with six-monthly coupons and durations of 4, 5, 6 and 8 years, designed above all for the needs of savers and retail investors. In fact, they are the first government bonds that the Treasury issues using not the traditional auction mechanism, but the Mot platform of Italian Stock Exchange. In this way the purchase at the issue, as well as in the bank, can also be done through any home banking enabled for trading functions. Also in this case the duration is variable, the coupons are semi-annual and it can be sold on the secondary market. Furthermore, anyone who keeps the securities purchased until their natural maturity is guaranteed a premium at maturity.
Net yield difference between Btp and Btp Italia
The BTPs have three possible modes of return.
Coupon rate: it is the half-yearly interest rate which determines the amount of the coupons. If you buy a BTP for 100 euros with a coupon rate of 1.20%, every 6 months you will receive 1.20 euros in the form of a coupon, from which the 12.50% tax must be deducted.
Emission discount: a Btp is bought at a certain amount (the issue value), when it expires it is not said that it will be repaid at the same amount with which it was purchased. In fact, the redemption value can be above par, if it is lower than the issue value, causing a loss, or at par, or below par, generating a profit.
Sale before expiry: a BTP can be sold before expiry. Again, the sale value, as in the case of the redemption value, can generate a gain, a loss, or neither.
The minimum yield of the BTP Italia is known shortly before the issuance. As mentioned, the new Btp Italia was released on 6 March 2023. The guaranteed minimum coupon of the new issue is fixed at 2%, while the definitive rate will be established with a subsequent communication at the opening of the fourth day of issue, on 9 March. The new BTP Italia has a duration of 5 years and envisages a loyalty bonus of 8 per thousand for those who purchase it upon issue and hold the bond until maturity, in 2028. To define the value of this coupon, consideration was the Istat Foi index reached at the end of January. Warning: in the event of deflation, the coupons are in any case calculated on the nominal capital invested, therefore with protection extended not only to the principal amount, but also to interest. The yield tax is 12.5%, as for all government bonds.
