Perhaps not all investors know that some BTPs have clauses introduced by the European Union. Here’s what it is.
I Italian government bondslike BOTs and BTPs, are mostly a safe investment. The only risk for the investor is linked to the bankruptcy of the issuing entity (in this case the Italian State) and, consequently, the non-repayment of the invested capital and accrued interest.
Investors need to know the CACS on BTPs (information today. it)
However, there is also another risk that many investors do not know or pretend not to know, stating that it is a rare, if not impossible, eventuality. It’s about the clausole CACS which could have even serious economic consequences on the financial portfolio. Let’s find out what it is.
BTPs and CACS clauses: what they are and why they need to be taken into account
The clausole CACS they are a set of rules of coercive collective action which would be activated in the event that a State finds itself in economic difficulty. In practice, they serve to renegotiate the terms and cadences with savers who have purchased government bonds.
Here’s what happens to BTPs subject to CACS
Even if it is the possibility of such an event, it is rare and it is better for the investor to know what the consequences of the CACS clauses are. In fact, pretending nothing happened could also cause the loss of 50% of the value of the BTPs (or securities in general) held in the financial portfolio. This case can happen if the clause proposes cutting the coupon of a security: the only way to obtain repayment, otherwise you risk losing all your savings.
The CACS are active in the securities issued after 2013 (press release number 186 of 19 December 2012 published by the Ministry of Economy and Finance). They were wanted by the European Union in the Treaty on the European Stability Mechanism.
Moreover dal 2022 are included in all BTP with a duration of more than 12 months and also the BTP Italia and the BTP Futura are subject to these clauses. As you understand, there is no way to avoid CACS, other than to no longer invest in government bonds. Or, buy BTPs prior to 2013 or BOTs with a duration of less than 12 months.
Actually, there is one upside: i yields on these stocks are much higher. In fact, the state pays more to compensate investors for any losses.