Short term BTp auction linked to European inflation up to 5 billion euros

While the market waits to know the conditions under which the new BTp Valore May 2030 will be issued, the Treasury proceeds quickly with the ordinary auctions. The next one for medium-long term deadlines will be held on Tuesday 23 April and will have as its subject BTp short term and other bonds linked to European inflation. The nominal value offered will be between a minimum of 4 and a maximum of 5 billion euros. In detail, there will be three titles in the placement.

Short term BTp, here are the characteristics

We have, first of all, the short term BTp with maturity 28 January 2026 and 3.20% coupon (ISIN: IT0005584302) for a fifth tranche between 2 and 2.5 billion.

This security is currently priced just below par and offers a yield of 3.42%. As many of you will already know, it is a Treasury bond that is completely ordinary in terms of its functioning. Although the peculiar name might make you think otherwise, it pays fixed coupons every six months and the capital will be repaid in full on the maturity date. The name is due to the fact that it is a security that replaces the old CTz on the part of the curve that goes from 18 to 30 months at the first issue. As of today, the short term BTp up for auction next Tuesday has a residual duration of just over 21 months.

Since the issue of the first tranche took place on February 27th and the detachment of the first coupon will be on July 28th, the bondholder will receive a “short coupon” equal to 1.3362664% of the nominal capital. The gross rate corresponds to an enjoyment period of 152 over a theoretical semester of 182 days. Therefore, 13.36 euros for every 1,000 euros of nominal investment. Net of tax withholding, 11.69 euros.

BTp€ia 5 years

And in addition to the short term BTp there will be the two BTp linked to European inflation (BTp€i). To be more precise, they refer to theEurostat index harmonized for consumer prices and net of the tobacco component (HICP) for the twenty economies of the Euro Area.

Between 1 and 1.25 billion will come from the thirteenth tranche of the BTp€i 15 May 2029 and guaranteed real coupon of 1.50% (ISIN: IT0005543803). This bond on the secondary market traded at the close of yesterday’s session at 100.61, offering a real yield of 1.37%. It compares with the 3.40% offered by the Treasury bond with a fixed coupon and similar maturity. Therefore, the market is pricing in Eurostat inflation averaging 2% for the next five years. In line with the European Central Bank target.

New BTp€ia 10 years

Finally, the second of the two BTp linked to European inflation: the BTp€i 15 May 2036 with real coupon 1.80% (ISIN: IT0005588881). The second tranche will be placed for 1-1.25 billion. In this case, the bond was priced yesterday at around 99 cents for a real gross yield to maturity of 1.90%, just over 2% less than the yield offered by the ordinary Treasury bond with a similar maturity.

In other words, these last two BTp linked to European inflation protect against the loss of purchasing power on average experienced in the monetary union in the medium to long term. They are very interesting for those who believe that actual inflation will be higher than what prices currently imply. Above 2% or a little more, the purchase would take place “at a discount”, i.e. the investor would accrue a higher return than what market prices suggest today.

BTp short term and linked to European inflation, watch out for the risks

Short term BTp and BTp linked to European inflation will allow Italian savers to invest on two different sections of the curve: short through the first bond and medium-long with the second and third. The last two also offer the possibility of exploiting any unexpected increases in consumer prices to one’s advantage.

Clearly, there is the opposite risk that European inflation turns out to be lower than expected and, therefore, the bonds yield lower yields than those that Treasury bonds with fixed coupons would offer today. Finally, pay attention to the mechanism capital appreciation in a single solution upon expiry.

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