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Orders for the new issue of the bond stood at 2.5 billion euros at mid-day BTp Value that the Treasury is offering to small savers from today. At the halfway point of the first day of placement, the new BTp expiring 14/05/20303 collected requests for 2.5 billion euros against almost 80 thousand orders signed. On the first day of placement of the issue last February, the BTp Valore had total requests at the end of the day amounting to 6.44 billion euros. The issue of the BTp Valore will last until Friday 10 May, unless closed early. The security has a duration of six years, coupons paid every three months with pre-established returns that increase over time based on a ‘step up’ mechanism of 3+3 years (3.35% for the first three years and 3.90% in the subsequent three) and guarantees an extra final loyalty bonus equal to 0.8% for those who purchase it during the placement days and hold it until maturity.
Compared to the three previous editions, the premium of the minimum guaranteed rate compared to that offered at the same time by BTps of the same duration (6 years) on the secondary market could be higher: from 15-20 points in the three previous cases to 30-40 basis points. How come? This depends on the movement of market rates in the days between the announcement of the minimum guaranteed rate (in this case it is what was announced by the Treasury on 3 May) and the actual date of the start of trading (13 May). Let’s try to do two calculations.
Taking the average of the return of the first three years (3.35%) and the following three (3.9%) we obtain 3.65%. If we add to this 0.133% (which is nothing other than the 0.8% loyalty bonus rate that only those who purchase the security during placement and keep it until maturity will receive) we obtain a final gross annual rate by approximately 3.78%. When the Treasury announced the minimum guaranteed rate (3 May) the yield on 6-year BTp was at 3.55%.
This morning however it dropped to 3.4%. This is because on a global scale a buying movement on bonds began on the afternoon of Friday 3 May, after worse than expected employment data in the USA were published (and consequently better than expected in terms of the fight against inflation). Data that is leading the markets to focus on more than one cut (probably two) in interest rates by the Federal Reserve in 2024. The actions of the US bank have a cascade impact on the movements on the euro/dollar which in turn impacts cascade on potential decisions of the European Central Bank. Everything is connected.
This explains why the purchases of US bonds (which caused the yield on the American ten-year bond to fall from 3.65% to 3.46%) are also being reflected in European bonds, with a consequent drop in yields. At current levels the difference between the potential yield at maturity (for those who will therefore also benefit from the loyalty bonus) which is equal to 3.78% and the standard 6-year BTp (3.4%) is 38 basis points. If this trend were to be confirmed, or even improve in the next sessions, the fourth edition of the BTp Valore (which follows the first last June, followed by the second in October and a third just two months ago) could be the one with the highest prize. Because the Treasury can at most increase the minimum guaranteed rate at the end of the placement week (an option it reserves in the event of an unexpected worsening of rates) but not decrease it.
