A very problematic issue has arisen regarding government bonds.
Be careful not to consider this news as too technical or too far from everyday life because the downgrading of BTPs is a sting on the savings of all Italians.
Let’s see what’s going on. The agency Moody’s has seriously threatened Italy to lower its debt rating.
A sting on savers
This is substantially reflected in the BTPs subscribed by Italians.
With the arrival of inflation, many Italians have signed up state BTPs. Taking out a state treasury bill is in principle a very good idea because the yields are particularly high today and the money is always guaranteed by the state. So it is not surprising that so many Italians have signed up for these treasury bills. But with the rating cut many things can change. In theory, the new BTPs issued by the state could also have a higher return because they are worth less than the debt of the state there is a need to offer a higher yield to make treasury bills attractive.
What changes concretely
But certainly a downgrading of the public debt it does not please those who have invested money in BTPs. In fact, the ten-year BTP expiring in December 2032 has lost a lot of value. So in a nutshell let’s say that if there is a downgrade it can be one positive news for those who subscribe to the new bonds but it can be negative news for those who have already subscribed to fixed rate BTPs. But this issue of downgrading has now become very hot. In fact, with the strong inflation and the energy emergency, the government could be forced into unprecedented social aid. If the government were to actually launch unprecedented aid, the public debt would be at risk. But most of all the rating agencies probably are worry about the government’s promised tax cut.
The strongest risks
Already the British government by promising a tax cut to the richest had created a real emergency. Probably what the rating agencies want to say to Italy is that with such a high public debt a tax cut is unthinkable at the present time. However, for all Italians who have the money invested in BTPs, but also for all Italians who think of making this investment, the issue of downgrading certainly represents an element of great tension. In fact, a downgrading of the debt changes the cards very quickly with regard to BTPs and precisely for all those Italians who rightly consider these tools a refuge, problems can arise.