Btp Italia, from yield to maturity: here’s what to know

MILAN. The new Btp Italia arrives. From Monday 6, a new round of government bonds indexed to the national inflation rate and designed for individual savers will be available for subscription. It will be the first issue of 2023 which arrives, like the previous one, in a phase of double-digit inflation: in January, the national consumer price index for the entire community recorded an increase of 0.1% on on a monthly basis and 10% on an annual basis, down from +11.6% in the previous month. To attract savers, however, the Treasury will have to set the coupon above 2%.

Capital revalued every six months
The promise is to offer coupons that protect against the increase in the cost of living: thanks to the indexing mechanism used, every 6 months the BTP Italia acknowledges to its holder the recovery of the loss of purchasing power that occurred in that period, through the payment of the revaluation half-yearly of the subscribed capital. Furthermore, the coupons, which are also paid semi-annually, guarantee a constant minimum return in real terms. In fact, the amount of each coupon is calculated by multiplying half of the fixed annual coupon real interest rate, established at issue, by the subscribed capital revalued on the basis of inflation that occurs on a six-monthly basis.

The capital appreciation formula adopted for this issue is the same as the previous ones which had attracted great interest especially from retail investors. The previous issue last November had collected almost 12 billion euros (maturity 2028) while the quota had been 9.45 billion in June with a security maturing in June 2030. Regarding the new Btp Italia arriving. The operators’ idea is that the demand could easily be around 10 billion euro.

Features
The new upcoming issue, the nineteenth tranche for the inflation-indexed security, provides for a 5-year maturity (March 2028) and a single loyalty bonus of 8 per thousand on the non-revalued capital for the retail saver who buys on the days of issue and holds the investment until maturity. Subscription will end on Thursday 9 March but this last day, as also happened in the previous editions, will be reserved for institutional investors.

The guaranteed minimum annual real coupon rate will be announced on 3 March. In the latest edition, the Treasury kept the coupon at 1.6%. For experts, this is the level that could also be decided for the upcoming round.

Tensed bond market
The new Btp Italia issue comes at a time of renewed tension on the bond market. After the latest inflation data, expectations are growing among operators that the ECB will maintain an aggressive stance in its monetary policy in the coming months by raising the cost of money up to February 2024, with a forecast of a terminal rate of 4%.

Analyst ratings
In theory, considering the 5-year inflation forecasts of around 2.6%, with a coupon above 1.5% and considering the premium that the State guarantees to those who hold the bond to maturity, the new issue compared to BTPs of the same maturity not indexed to inflation – analyzes Edoardo Proverbio, Investment Area Manager of Decalia -. However, the choice depends on inflation expectations: if one believes that inflation expectations for the next few years can be revised upwards, which we still believe is probable, then the inflation-indexed BTP should be preferred».

According to the expert, from a quick comparison with the BTP Italia November 2028 already issued and with a maturity of only a few months longer, the coupon of the new BTP Italia should be higher than 2% for this new issue to be more convenient.