Change the maturity, but not the result: the 30-year Btp also experienced massive excess demand on February 16: 26.5 billion euros for 5 billion placed, translating into a bid-to-cover of 5.3. The issue announced just the day before, as is the case with such long maturities, was mainly absorbed by institutional investors, who will take home an annual coupon of 4.5 percent, just above that offered by the 10-year bond (yield 4.334 percent at the end of the day on February 16). For a retail investor aiming to hold the bond to maturity, 30 years seems like an eternity, less so for insurance companies or pension funds that put yield in the pot by managing very long horizon portfolios.
The longer duration of the 10-year bond, and even a slight increase in yield, could offer some extra performance in the event of an early liquidation of the bond-as inflation and rates are expected to fall as bonds rise in price inversely to their yield. As many managers and analysts stated, the window of opportunity to take advantage of a spike in yields has made government bonds the most popular asset class in professional portfolios in early 2023. In this respect, BTPs are among the most attractive bonds as yields among those in advanced economies.
Banks and fund managers in the front row for Btp.
About 200 investors participated in the latest issue: the largest share of the placement, the Ministry of Economy and Finance reported, was subscribed by banks (40.4 percent), while fund managers subscribed 24 percent. “Investors with a long-term investment horizon,” the MEF added, “purchased a significant 28.7 percent share of the issue (in particular, 10.5 percent went to pension funds and insurance companies, while 18.2 percent was allocated to government institutions).”
More than the long-term view, speculation about the return of yields in the coming months will have been thought of by hedge funds, to which 6.5 percent of the 30-year Btp issue went. Is this something that could also be emulated by an individual investor? The minimum denomination of this Btp, equal to 1,000 euros as for all other Treasury bonds, makes it possibly accessible on the secondary market as well, starting from the issue date of February 23 (Isin IT0005534141).
In terms of geographic distribution, the 30-year Btp was also very successful abroad, to which 57.3 percent of the amount placed went, with “the United Kingdom (17.7 percent), Germany, Austria, and Switzerland (9.6 percent), Iberian Peninsula (7.2 percent), Scandinavian countries (6.1 percent), France (5.9 percent), Greece (5.2 percent), and Benelux (1.3 percent)” being particularly prominent. North America went 3.1%, and a marginal 1.2% was placed with other non-European investors.
Btp and government bonds, upcoming issues on the calendar
Italian government bond issues will continue with short maturities (Btp Short) and Btp€i indexed to European inflation on February 22, while on February 23, it will be the turn of BOTs. On February 24, the medium-long auction is scheduled. The most sponsored moment for retail investors announced about a month in advance, is that of the new Btp Italia indexed to the country’s inflation: the bond will be in retail placement between March 6 and March 8.
As stated in a previous in-depth discussion, the advisability of buying the inflation-indexed Btp varies according to future price trends (not the heavy increases that have now been acquired). Opting for the fixed coupon, should there be a decline in inflation to market-expected levels, would be more convenient. In a diversified portfolio, a bond that increases the coupon concerning price trends is a way to shelter savings from unexpected increases in inflation.
