Co-founder of Affari Miei Independent Financial Advisory Company
18 September 2023
The second issue of BTP Value 2023 is scheduled for the week of 2 to 6 October 2023. With a duration of five years and a series of innovative features compared to other issues, this new instrument is already attracting a lot of attention. But what are its features and, above all, is it worth investing in?
In this article we will try to answer this question and focus on one of the most controversial aspects related to our public debt which is often completely ignored by savers. Are we facing a trap? If yes, what size?
Read on to discover this and much more.
This article talks about:
Main Features of the BTp Value
On this page we will follow all the steps relating to the issue in real time, below we summarize the main characteristics of the BTP Valore being placed in October.
Quarterly Coupons and Yield
One of the most significant innovations is the introduction of quarterly coupons with a mechanism of increasing rates (step-up). The actual yield will be communicated on September 29thforecasts based on the yields of government bonds of the same duration indicate an expected annual gross return of between 3.8%-3.9%.
Furthermore, the MEF has made it known that whoever holds the security until maturity will receive a 0.5% loyalty bonusin line with the treatment reserved for retail investors on other occasions.
Minimum Investment and Purchase Method
The minimum investment is set at 1.000 euro. The security can be purchased without commissions through home banking and will be traded on the Mot platform (electronic bond market).
Don’t know how to invest?
Find out what kind of investor you are. Are enough 3 minutes to discover the best strategy for you.
>> START NOW!
Taxation and Duration
Taxation is subsidized at 12.5%, in line with all Italian and European government bonds. The duration of the title is five years.
The Risks of BTp Valore
It is generally believed that BTp are part of the so-called safe investments although here on Affari Miei we tend to reject this belief.
As with any investment, in fact, there are always risks to consider and the BTp Valore is not exempt.
Volatility and Interest Rates
Volatility is a factor to evaluate, especially if interest rates change over time as has been happening in recent years.
An increase in rates will reduce the value of the security on the secondary market and vice versa: to be honest, at the moment the opposite scenario seems more plausible, i.e. a reduction in medium-term rates which should, again in theory, favor long-term bonds fixed rate issued in this phase.
Issuer Risk
Although remote, the default risk or debt restructuring by Italy cannot be overlooked, indeed, it must make us think about the subsequent reflection that I will develop in the next paragraph.
What if the BTP Valore was a GIGANTIC TRAP for Italian savers?
The current government is promoting the purchase of BTPs as a strategy of “debt sovereignty“, arguing that this would protect Italy from international financial speculation. Many will remember the debt crisis of a decade ago when the explosion of the spread sent BTp yields skyrocketing and risked ruining public finances.
From there were born the Monti government, the Fornero law and, in general, difficult years for our country for which, rightly, we do not have good memories.
What has changed since then? Practically nothing, unfortunately.
Il public debtin fact, has grown even more and at the time of writing it is around 143,5% when compared to PIL. Only Greece is worse than us in the European Union, currently at 168% with a reputation considered even better by international investors who, for some time now, have started asking for lower interest from Athens than those asked for by us. Village.
Italian public debt is in a precarious position due to various factors such as excessive pension spending, the demographic crisis, high tax evasion and economic growth which, apart from the post-pandemic years, has proven to be rather poor, which is why salaries, among other things , have not increased for more than a decade.
A highly indebted country like ours, in the event of a prolonged economic recession, would be one of the first suspects to go into difficulty and could be “dumped” by investors who, faced with obvious risks, could ask for a higher premium for their risk which translates into greater interest.
Higher interest on debt brutally produces even more public spending: a toxic spiral from which it would be difficult to escape. In this context, which is currently only possible, let’s underline it, a debt restructuring could become inevitable.
What is the government inviting us to do in recent months? From Palazzo Chigi and the MEF they do everything to invite savers to subscribe to BTp with conditions which in some cases appear to be quite generous.
The aim is, in fact, to avoid possible international speculation by increasing the percentage of public debt held by private Italian citizens and reducing that held by foreign investment funds.
For what reason? It seems clear that with a debt held mainly by Italians, the government would have an easier time restructure debt.
This would translate into: reduction of coupons, deferral of payments, cuts with respect to the repayment of capital. All things foreseen by the so-called CACSnothing not known to the most attentive.
This is the – for now hypothetical – trap potential of BTp: to “replace” international creditors with private citizens, who are notoriously very well capitalized, in order to be able to more easily repay public debt in the event of difficulty.
What do we want to call this thing? Call it what you like: patrimonial, restructuring, forced withdrawal… the substance is that with more debt in the hands of citizens the government, of any political colour, would have fewer problems with international finance and could intervene decisively.
A exit strategy intelligent if we want for those who govern but which translates into a risk for those who invest.
These are hypotheses, let’s be clear, and you will hardly hear such reasoning from the mainstream media or from all those subjects such as banks who, thanks to the placement of BTp, pocket commissions and, in some way, obtain an immediate return.
Does this mean that we should not invest in Italian government bonds or those of another European country? Of course not, but we need to really know the risks to which we expose ourselves, risks that become enormous if you decide to allocate most of your money, as unfortunately many do, only on BTp.
That’s it for now, we just have to wait: this article will be updated in the next few days as we have more information.
I conclude by saying that if you are looking for resources on the topic, here you will find some articles that may interest you:
If, however, you are trying to start your investment journey in a conscious manner as an independent investor, then I recommend you find out more here:
Happy continuation!
Find out what kind of investor you are
I have created a short questionnaire to help you understand what type of investor you are. At the end, I will guide you towards the best contents selected based on your starting situation:
>> Get Started Now