BTp Italia Sì: the yield starts at a fixed rate of 1.6%

The new BTP Italia Sì will start with a base fixed rate of 1.6%, to which a half-yearly inflation adjustment will be added to determine the coupon paid to investors.

The minimum guaranteed rate announced by the Treasury is, in fact, just the first piece in the structure of the new government bond aimed at retail investors, which will be on offer from Monday 15 to Friday 19 June.
The main feature of the BTP, which will have a five-year maturity but, as always, can be traded at any time on the secondary market, is in fact its indexation, which adjusts the coupons based on price movements recorded every six months. The inflation-linked component will therefore be added to the fixed rate base, which the Treasury has for now set at the guaranteed minimum: on Friday 19, at the end of the placement week, the final figure will be released, which may confirm or revise upwards the rate from the preliminary announcement. Unlike on previous occasions, all five days are reserved for retail investors, as there will be no ‘queue’ for institutional investors, as was the case with the old BTp Italia bonds. In short, households and small investors will have until Friday 19th to consider purchasing the bond. And only on that day will the Treasury announce the final rate, although it should be noted that the minimum rate just mentioned obviously takes into account the latest rate hike decided on Thursday by the European Central Bank
The picture is completed by the 6 per thousand loyalty bonus, intended for those who purchase the bond during the offer week and hold it until maturity.

The combination of the minimum base rate and the variable component linked to inflation enables the bond to guarantee a return under any circumstances. The mechanism is very simple: every six months, the Ministry of the Economy checks the inflation rate for the half-year, as measured by Istat’s FOI index (‘Families of Workers and Employees’), and adds it to the fixed base to calculate the coupon. In this way, even in the event of zero inflation or even deflation (admittedly unlikely at this stage), the investor would still receive a return equal to the fixed base rate. With half-yearly inflation at 1.8%, this is the sum of 0.8% (half the fixed annual rate) and the price changes for the period. With half-yearly inflation at 2%, the return would be 2.8%, whilst in the event of stable or falling prices, the security would still offer a half-yearly coupon of 0.8%.

As always, the BTP can be purchased at par during the placement, commission-free, with a minimum denomination of €1,000. It is subject to the favourable tax treatment applicable to government bonds, with a tax rate of 12.5% and exemption from inheritance tax.