The bond market continues to be tempting, while savers’ interest in bonds continues best BTPs to buy.
While the focus of operators and savers today is entirely on the imminent closure of the bond issue new Btp Valueit is time to focus on what are the most attractive potential opportunities for the investor interested in buying BTPs with a time horizon of middle term.
Why focus on BTPs in the medium term
Circumscribing the “medium term” as a time horizon from 2 to 5 yearsexceptionally even wider up to a maximum of 10 yearsjust observe the market to identify the BTPs to evaluate for purchase based on the net yield offered.
Please remember that the net return takes into account the expected annual coupon and the impact of the principal repayment at maturity, based on the purchase price on the secondary market which may be below or above par (100).
Our focus on intermediate range of the yield curve – rather than in the short or long term – is explained by the greater possibility for BTPs in the medium term to benefit from the imminent reversal of the investment approach monetary policy on the part of European Central Bank. In simpler words, it is now a given that Lagarde’s ECB will cut interest rates starting from June. If today the yields of BTPs with different time horizons are very similar, then betting on the medium term allows you to receive a “prize” resulting from the new interest rate policy.
In an economy where interest rates are falling, in fact, BTP prices on the market tend to rise.
Let’s take a practical example.
At the moment ECB rates are at 4.5%. We decide to buy the BTP 15DC29 (IT0005519787) with a coupon of 3.85% and a residual duration of 5.6 years. Let’s assume we buy at 100, corresponding to the nominal value of the bond.
After a few months (or years) from our purchase, the ECB gradually brings its reference rate from 4.5% to 3.5%. The BTP will continue to yield 3.85% per year, at a level that has become higher than the ECB rate. This dynamic will attract investors, who will increase demand and therefore the price of government bonds. The saver can therefore decide to sell, speculating on the difference between the purchase price and the selling price.
The best BTPs on the medium term today
To exploit this dynamic, as anticipated, it is necessary to position oneself on the intermediate band of the yield curve, focusing on durations from 2 years upwards, up to a maximum of 6-7 years. A 10-year maturity, in fact, poses excessive risk of a further change of direction in the ECB’s monetary policy.
Belonging to the medium-term range, we report the BTPs with the highest coupon. Be careful to evaluate the net return, which takes into account the tax rate and the purchase price on the secondary market, which makes the repayment of the capital at maturity on the basis of its nominal value more or less convenient.
7.25-BTP-1NV26 (excluded from CACS)
Isin: IT0001086567
Gross coupon: 7.25%
Residual duration: 2.48
Price: 109.3
Net return: 2.8%
6-BTP-1MG31 (excluded from CACS)
Isin: IT0001444378
Gross coupon: 6%
Residual duration: 6.97
Price: 115.8
Net return: 2.82%
5.25-BTP-1NV29 (excluded from CACS)
Isin: IT0001278511
Gross coupon: 5.25%
Residual duration: 5.48
Price: 109.62
Net return: 2.79%
4.75-BTP-1ST28
Isin: IT0004889033
Gross coupon: 4.75%
Residual duration: 4.31
Price: 105.77
Net return: 2.82%
4.1-BTP-01FB29
Isin: IT0005566408
Gross coupon: 4.1%
Residual duration: 4.73
Price: 103.41
Net return: 2.86%
4-BTP-30OT31
Isin: IT0005542359
Gross coupon: 4%
Residual duration: 7.47
Price: 103.35
Net return: 3.01%
4.0-BTP-15NV30
Isin: IT0005561888
Gross coupon: 4%
Residual duration: 6.51
Price: 103.21
Net return: 2.97%
3.85-BTP-15DC29
Isin: IT0005519787
Gross coupon: 3.85%
Residual duration: 5.6
Price: 102.36
Net return: 2.93%
3.85-BTP-15ST26
Isin: IT0005556011
Gross coupon: 3.85%
Residual duration: 2.35 years
Price: 101.18
Net return: 2.89%
3.7-BTP-15GN30
Isin: IT0005542797
Gross coupon: 3.7%
Residual duration: 6.1
Price: 101.45
Net return: 2.99%
| DISCLAIMER The information and considerations contained in this article should not be used as the sole or primary basis for making investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to public savings. |
