An interesting BTP with a 3.85% coupon: strengths, weaknesses and possible operational strategies


The aficionados Government bonds are constantly looking for some form of attractive return. The goal remains the same: to combine capital protection with return. An operation that is often not easy to solve given the current market averages. Let’s try to understand more about an interesting BTP with a 3.85% coupon: strengths, weaknesses and possible strategies.

The BTP in dollars

On September 1, 2018, the Italian Treasury issued bonds over a long time horizon: 30 years, to be exact. Whose returns may be more attractive, especially when compared to the short part of the bond yield curve. The BTP examined here is the one called “Btp Tf 3.85% St49 Eur”, ISIN code: IT0005363111, expiring on 09/09/49. The amount issued was equal to 13.342 billion euros, and the minimum lot is equal to one thousand euros.

The bond has a six-monthly coupon (dividend dates: March 1 and September 1 of each year), has a “Plain Vanilla” type structure. That is, the net return will also depend on the underlying market price course. Today it trades on the MOT at around 130.6, therefore abundantly above the issue price that we remember is equal to 100. Finally, the annual minimum and maximum were equal (respectively) to 114.53 and 145.16. The chart below (weekly timeframe; source: Investing) summarizes the trend of the courses of its short life.


An interesting BTP with 3.85% coupon: strengths, weaknesses and possible strategies

The small saver wonders about what potentially can be done with this tool. The strengths and weaknesses of the BTP are actually contiguous with each other, in the sense that many of its characteristics lend themselves to different interpretations depending on the point of view.

The yield. At current prices the bond makes 2.075% net, which on the one hand guarantees a good certain coupon flow. However, committing liquidity for a good 28 more years at only the 2% rate is not the maximum of the desirable returns over time. There liquid assets of the instrument. In this regard, there is no excessive shortage of exchanges, although it must be said that they are not even that abundant. At the most, some problems can be encountered in the “liquidity crisis”, which cannot be excluded a priori from time to time. The instrument is therefore in euros free of exchange risk. As for theissuer, the Italian public debt borders on the garbage level. From now until 2048 will it be just a risk or will it become reality? Difficult to answer over such a long period of time.

A possible operational cue

A possible strategy could be to focus on recovering the maximum for the period in the area around 145. The long maturity of the bond in fact makes it possible not to exclude such probabilities a priori. Such a strategy should obviously be carried out with a medium-term (a few years) time span in mind. Starting from the current levels, 130.6, the upside potential would be 11.02%. Of course, it would be wiser to wait for entry points on the instrument on possible market reversals. Thus optimizing the purchase price, considering that at the natural expiration, however, you will only receive the 100 nominal.

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