BTp Futura convenient for savers or does the new bond disappoint expectations?

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Yesterday, the Treasury presented a press conference BTp Futura, a government bond reserved for retail, that is, for Italian savers. It will have a duration of 8-10 years – the deadline will be announced on June 19th – and a “step-up” coupon. A loyalty bonus of 1-3% is expected, depending on the growth rate of the GDP. It must be admitted that this is an original bond of its kind, because it has characteristics similar to those of a BTp Italia as regards the loyalty bonus and its retail vocation, for the rest it would be a title with a growing coupon and only marginally linked by return to economic growth.

BTp Futura, what is and how the new bond for savers launched by the Treasury works

A complete analysis is not possible, as we do not know the certain numbers of the July issue, probably the first in a series. For example, there is already talk of a second after the summer, perhaps already in September. We can say one thing: we did not expect a BTp of this kind and, in a sense, yesterday’s official launch has disappointed the expectations of many analysts.

Let’s start with the duration. Since the Treasury aims to consolidate public debt, both by lengthening its maturities and by increasing the share of investment among families, we imagined a much longer duration. To date, that weighted average is 7 years in the area, so the 8-10 years reported yesterday appear to be little. American Patriot Bonds, for example, have a minimum term of 20 years. We also know that the issue will take place at par, while a sale much below 100 was expected to make the title attractive, perhaps against a very long maturity.

Unattractive performance

And the yield? During the issue it will coincide with the average coupon of the security. Looking at the Italian sovereign curve, we note that the yield at 8-10 years is currently around 1.30-1.40%. According to the experience of the last BTp Italy, it is probable that the Treasury will decide to offer a premium to savers and, therefore, at present we should expect a return of around 1.50%. Will it be enough to attract family portfolios? The main problem consists in the structure of the coupon, which, being increasing over the years, must necessarily be initially lower than the average return imagined above, except to rise above it in the last part of the bond’s life.

To understand this, with an average yield on issue of 1.50% and 4 biennial “steps” assumed for an 8-year maturity, perhaps the initial coupon would be 1.20% for the first two years, 1.40% for the third and fourth year, 1.60% for the fifth and sixth year and, finally, 1.80% for the last two years. It is difficult to believe, however, that there will be a rush to buy a portfolio with such a low initial interest rate in the portfolio. It is true that these levels are considered to be out of the market today almost everywhere in advanced countries, but Italy represents a negative exception.

Of course, there is the bonus to be added, which will not be less than 1% and cannot be greater than 3% of the nominal capital. In the case of an eight year, we would have an extra return of 0.125-0.375%, while in the case of a ten year of 0.1-0.3%. Well, very well, if it were not that at the time of the issue a saver tends not to look with too much passion at a profit, which would only be paid to him 8-10 years later and only if he had held the bond until the last day . To conclude, the investment would be tempting, given the alternatives of the same degree of security, but we are far from the revolutionary bond that has been airing in recent weeks. Unless it was made more sympathetic by favorable tax legislation.

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