Two new BTP values. So similar and yet so different. One with a quarterly coupon, the other with interest repayment at maturity. “For the first time – announces the Mef – two different value BTPs will be offered at the same time which can be purchased either alternatively or jointly”. The treasury bonds will be placed from Monday 19th to Friday 23rd October (until 1.00 pm), unless early closure.
The characteristics and differences of the two titles
The duration of the two Bpts is the same: 5 years. The returns will be communicated on October 16th, but in terms of financial performance they are announced as equivalent. At the end of the placement, we read in the note from the Ministry of Economy, the minimum rates communicated may be confirmed or revised upwards, if market conditions so require.
One of the two BPTs will have quarterly coupons increasing over time “according to a profile that will be announced before the issue”. The other is single coupon, i.e. with a single coupon: all interest will be paid in a single solution, upon maturity of the bond. Which bond to bet on? It goes without saying that the choice must be weighed based on your needs. A saver who aims to obtain a small constant return over time will have more interest in purchasing the bond that pays periodic interest; vice versa, the other Bpt is more suitable for those who do not need to collect coupons and prefer to receive a final “maxi instalment”.
The single coupon BPT is a little more sensitive to rates
From a risk point of view, however, the two bonds are not entirely equivalent. With the same characteristics, the periodic coupon BTP is a little less sensitive to interest rate movements because part of the interest is repaid before the maturity of the security. The key concept is that of duration, or – to simplify – the time needed to get the invested capital back. With a single coupon BPT, the duration coincides with the residual life of the security, while with a bond that pays periodic coupons it is a little shorter.
How bonds depend on rates
Good, but what changes in practice? The mechanism that regulates the bonds is known. If today I buy a BPT at rate Which doesn’t mean that it will yield less, but that if I were to sell it before the deadline I would have to do so at a “discounted” price. Conversely, if after buying a BPT the rates fall, my stock will have a higher value.
It goes without saying that interest rate risk should only be taken into account if you plan to sell the BPT before maturity. Those who aim to hold the security for 5 years can safely ignore the fluctuations of the security during its life, having the bankruptcy of the issuer as the main risk.
In the case of the two bonds in question, if the ECB were to raise rates again, the single coupon bond would have a slightly steeper decline. Which means that if an investor found himself needing to sell the security before maturity he would have some additional risk of doing so at a loss. But the opposite is also true: if rates were to fall, the single coupon bond would acquire more value. However, these are limited price fluctuations which alone can hardly guide the choice. But they still need to be taken into account.
| Characteristic | Btp Value (quarterly coupon) | BTP Value Together (single coupon) |
| Duration | 5 years | 5 years |
| Coupon Frequency | Quarterly (every 3 months) | Single, at the end of the 5th year |
| Final Yield | Equivalent to the issue | Equivalent to the issue |
| Taxation | 12.5% (subsidized) | 12.5% (subsidized) |
| ISEE exemption | Up to €50,000 in total | Up to €50,000 in total |
| Duration (rate risk) | Lower (more stable price) | Higher (more volatile price on the secondary) |
| Ideal Profile | Those looking for a constant periodic income | Those who want to accumulate capital without touching it |
BTPs placed at par with a minimum denomination of 1,000 euros
Both securities can be purchased exclusively by small savers through their home banking, or by contacting their contact person at the bank or post office. The minimum denomination is 1,000 euros. The Mef informs that the securities will be placed at par and without commissions during the placement days, without prejudice to the costs of managing the securities account or online trading required and due to your bank where present. The reimbursement will also take place at par, in a single solution upon expiry.