Historic low for 10-year BTPs (0.6%), five-year bonds for the first time in negative. Mes loans are becoming less and less convenient

Down, lower and lower. The decline in yields on Italian government bonds continues. In the afternoon the rate of 10-year BTP has slipped to an all-time low of 0.603%. Yesterday, for the first time, the 5-year BTP made a excursion into negative territory scoring a – 0,09%. Shorter maturities are moving for some time already below zero. The fall in the yields of five-year bonds lasts, more or less continuously, since last June when a 5-year BTP paid 1.4%. The phenomenon is certainly not purely Italian. Rather. Some European countries have negative interest on securities of all maturities. In Germany a ten-year bund today has a negative interest rate of 0.6%, a French ten-year bundle of 0.4%, a Spanish “pays” minus 0.1%. Coupons in Greece are also very low: 0.8% for a 10-year loan. In the world now 90% of the bonds (both government and corporate bonds) have yields below 3%.

Returns thus compressed are due to several factors. The main ones are, on the one hand, the very low inflation or, in some cases like Italy and Europe, one mild deflation. On the other, the continuous, massive, purchases by central banks. Government bonds are “a fixed income“, Ie they always pay the same interest in absolute values ​​for their entire duration. Instead, the interest changes if calculated in relation to the value of the security. The more purchases go up, the more the price of the security increases and therefore, proportionally, the yield offered decreases.

Because an investor would have to buy a stock and then sell it back on maturity a lower figure than that paid on purchase? Two reasons. The first is to invest in a bond as you would invest by buying an action. That is, by betting on the increase in the value of the security to resell it before maturity. The second is to expect one deflationary scenario persistent. If during the term of the title prices fall, in the end we could end up with a sum that, even if lower than the initial one, it is worth more in relative terms.

European loans less and less “appetizing” – Of course, the drop in interest it reduces the convenience of alternative financing to those found on the market. Among these also the loans of the My whose cost on the ten-year maturity is about 0%. The more the BTP yields fall, the more the convenience decreases.

Today the Treasury presented the terms of the second issue of Future BTP, the tool more directly in competition with the Mes option. The placement will take place between 9 and 13 November and the bonds they will have a shorter duration (from 10 to 8 years) compared to the first tranches. Last July the future BTP had collected subscriptions for 6.1 billion, less than expected and hoped for. To entice savers to buy the title they are interest is expected to increase over the term. A good opportunity if rates remain around the current low levels for a long time, which is not obvious. The Mef also has repurchased government bonds for an amount of 4 billion euros, focusing on deadlines 2021 e 2023. The operation fits into a broader strategy of extension of the average duration of our debt (now about 6.9 years old). The longer the average duration is extended, the less public finances are affected by the ups and downs and the “whims” of the markets.

With closed markets the agency Moody’s will communicate its assessment updated of the Italian debt situation. Despite the worsening of the debt-to-GDP ratio, Standard & Poor’s had ten days ago confirmed his judgment, however, improving the assessment of the next probable developments.

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