What better deadline than the seven-year term to invest in the Italian sovereign market, neither in the short nor in the long term. From BTp 2031 there are many in circulation, including a green Treasury issue. Obviously, given the same return, one could make the mistake of thinking that one is as good as the other for investment purposes. It’s not like that at all. Since the issues were carried out in very different periods, the coupons offered vary greatly.
And of course market prices are also affected.
BTp 2031 coupon 0.6% suitable for periods of low inflation
For example, the BTp 1 August 2031 with a 0.6% coupon (ISIN: IT0005436693) it can be purchased today at just over 81 cents and yields 3.65%. Anyone who includes this bond in their portfolio obtains an income flow per year equal to just 0.74% gross of the actual investment. This means that 80% of the average annual return comes from the capital gain that the investor will accrue at maturity, when the Treasury repays the bond at 100, while he paid about 19% less for it.
This bond is good in times of inflation expectations low, as is the current one. Otherwise, the risk would be to collect very low coupons that are insufficient to compensate for the loss of purchase value. Making up for the deadline may not be convenient, especially if we are talking about a long-term security.
Coupon 6%, perfect in times of high inflation
Let’s move on to BTp 1 May 2031 with a 6% coupon (ISIN: IT0001444378), which is configured as a bond opposite to the previous one. In this case, the effective coupon rises to 5.23%, given the market price of almost 115. In other words, the immediate return received by the investor is 145% compared to the average gross return at maturity, when it will suffer a capital loss of 12.76% due to the lower capital reimbursed compared to that spent on the purchase.
This bond can be of help in phases of high inflation, as the investor guarantees a high income flow that potentially compensates for the loss of purchasing power.
Green bond coupon 4%
And we come to BTp Green 30 October 2031 with 4% coupon (ISIN: IT0005542359). In this case, the price stands at around 102.30, so the effective coupon is worth 3.91%, 107% of the average yield offered at maturity. In return, the investor will suffer a loss limited to 2.27% on the redemption date more than seven years from today.
BTp 2031 perfect benchmark for medium-long term investment
Finally, the BTp 15 July 2031 and coupon 3.45% (ISIN: IT0005595803). It is the current seven-year benchmark. The price is below par, at 98.70 cents. Therefore, the effective coupon is currently 3.50%, equal to 95% of the yield to maturity. This bond is perfect for those who want to invest in the medium to long term and receive a constant flow of income, possibly above expected inflation. Unlike the previous one, at maturity not only will the investor not suffer any loss, but he will report a small capital gain.
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