There is time until May 10 to book the purchase of the new medium- to long-term BTP bonds up for auction next Thursday. The Treasury plans to issue at least €7.5 billion by issuing tranches of three Btp bonds: 3-, 7-, and 20-year.
Italian government bonds have proved to be very popular among savers and institutional investors and have been among the best-performing bonds since the beginning of the year. However, in recent weeks some analysts have suspected that high public debt and challenging implementation of the NRPR could reduce the country’s solvency in the coming years. In particular, Moody’s Agency has highlighted how, among major economies, Italy is the only one with a rating just above the “junk” threshold with a negative outlook, at high risk of a downgrade.
Analysts at Goldman Sachs, on the other hand, had pointed out that the ECB’s path back from expansionary monetary policy, which also consists of a gradual reduction of BTPs in its “portfolio,” could cause the spread to rise again (the reason why they suggested that Spanish government bonds should be preferred to Italian ones).
Net of these caveats, the coupons that the BTP bonds being issued offer investors indeed remain high compared to the recent past.
BTP bonds on issue in May, how much they yield
- The 3-year BTP bond, Isin IT0005538597, maturing on 4/15/2026, provides an annual coupon at 3.8 percent. The Treasury plans to issue between 3 and 3.5 billion.
- The 7-year BTP, Isin IT0005542797, maturing on 06/15/2030, sees a marginal lowering of the proposed coupon to 3.7 percent, considering a decline of inflation that would justify a smaller premium, despite the bond’s longer maturity. This BTP is expected to be issued between 3.25 and 3.75 billion euros.
- Finally, the 20-year Btp, Isin IT0005530032 and maturing on 01/09/2043, offers the largest coupon: 4.45 percent. It is expected to be issued between €1.25 billion and €1.50 billion.
A retail investor, as explored in a previous article, may find it convenient to match the duration of the bond purchased to that of their investment horizon, i.e., the time when they expect to need the sums invested. This choice may be preferable if one wants to avoid the risk of selling the government bond in advance at a price different from the subscription price: an operation that may produce a loss but also a profit depending on the trend in the yields of BTP bonds that will be issued in the future. “During the life of the bond, its price varies according to the dynamics of supply and demand, while at maturity you get the nominal principal,” that is, what was initially paid to the state, “except in the case of bankruptcy of the issuer,” Consultique Scf analyst Rocco Probo had told We Wealth.
In general, a shorter maturity reduces this risk as yield trends will affect bonds closer to redemption less.
As for alternatives to BTPs, other Eurozone government bonds could be considered to diversify the portfolio. In addition to the Spanish Bonos “promoted” by Goldman Sachs, a more conservative choice is German Bunds: the 10-year issued by Berlin yields about 2.3 percent and is considered a shelter for investors who fear speculation on government bonds of the most indebted European countries.
