“BTp Valore: Italy’s New Retail Bond for Individual Investors”

Joseph Timpone

3 minutes ago –

12 May 2023, 06:11 am

The placement of the first one starts on 5 June and ends on 9 June BTp Value. Duration 4 years and increasing coupons, it also recognizes a loyalty bonus to the so-called “drawer holders” subscribers. It is aimed exclusively at individual investors, i.e. families. It will be possible to book it without amount limitations at the bank or post office or simply from your online account, if enabled for the functions home banking. There will be no fees to pay for the subscriptions in the placement phase. As always, the new bond will subsequently be listed on Borsa Italiana’s Telematic Bond Market, where it can be resold and purchased. The minimum bookable amount is fixed at 1,000 euros and multiples of this amount. Lastly, the amount of the coupons and the loyalty bonus, as well as the ISIN code, will be disclosed on the Thursday preceding the start of the placement, ie June 1st.

Third type of retail bond

The BTp Valore is the third type of Italian government bond aimed at the channel retail.

At first it was the BTp Italia in 2012, then in 2020 there was the BTp Futura. The second was no longer issued after the fourth placement in 2021. We’ll see if this new formula will be more successful. The only certainty is that its launch is part of a strategy by the Italian government to “nationalize” the public debt. As of 31 January, almost 730 billion euros were in the hands of foreign creditors, 26.5% of the total stock.

In 2010, the peak was 52%. And to think that the quota currently includes Italian government bonds purchased by the European Central Bank (ECB) as a result of the two monetary programs launched over the years to stimulate inflation: Quantitative Easing (QE) and PEPP.

And between 2010 and 2011 BTPs were also purchased under the Securities Markets Program, aimed at countering the rise in spreads in Southern Europe. Last week, however, the ECB itself announced that from July it will stop reinvesting the bonds in its portfolio with QE. For Italy it will mean having to do without almost entirely a fundamental component for the demand for its sovereign bonds.

BTp Valore, government objective: to accentuate the favorable trend in retail

Therefore, the launch of the BTp Valore essentially serves to reinvigorate the domestic demand for government bonds. The numbers give the government hope. In January of this year, households owned just over 213 billion euro of BTPs. This sum amounted to 8.4% of the total stock. On an annual basis, therefore, there was a leap of 69.12 billion. At the beginning of 2022, the share of public debt held by households stood at 5.3%. In twelve months, the stock appears to have risen by almost 35 billion. This means, therefore, that the major purchases of BTPs among households were equal to 200% of the increase in debt.

There has been a resurgence of interest in government bonds after a decade of torpor. What happened? Yields have risen with inflation, also because the ECB has raised interest rates in a few months from zero to 3.75%. Before the monetary tightening began, the 10-year BTP yielded below 1%, today around 4.20%.

The relatively safe alternatives such as i deposit accounts they have not kept up. The rates offered by banks to customers have grown by a few decimals on average. It is natural that the appetite for government bonds has returned. The BTp Valore fits into this climate of rediscovered Italian willingness to invest. And if the BTp Italia slows down lending due to the indexing of the coupon to inflation, this new asset guarantees a certain and progressive return over time.

Pros and cons of government strategy

It will not be the solution to the spread. The BTp Valore will be able to help increase the share of debt in Italian hands.

That in itself would be neither a good nor a bad thing. Whether they are compatriots or foreigners, they are always creditors. The benefit of having many households investing in government bonds mainly consists in subtracting the latter mostly from the speculation on the markets. Individual investors are less likely to buy and sell on the secondary. The downside is that they generally only lend money to the government when rates appear suitably high. In short, it will not be possible to rely on families alone. Only fiscal prudence will contain the costs of refinancing.

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