BTp Valore and BTp Valore Insieme: features, coupon rates and maturities of the new five-year retail government bonds

Twenty-two point twenty-five per cent. The super-coupon on the BTp Valore Insieme, the first government bond without periodic coupon payments in the retail market range, offers a yield at maturity that makes quite an impression.

From a financial perspective, the annual yield will be 4.1 per cent: exactly the same as its more traditional counterpart, which will see coupon payments rise from 3.7 per cent in the first two years to 4.1 per cent in the second two, reaching 4.7 per cent in the fifth and final year of its term. However, a single coupon of 22.25 per cent may spark lively debate regarding the options available to savers. Decisions will be made next week, when from Monday 19th to Friday 23rd (barring early closure, an option never used to date), during the year’s final retail offering, the two five-year twin bonds will be on sale, for which the Treasury announced the guaranteed minimum yields yesterday. As always, the rates will take their final form at the end of the placement, and may either confirm yesterday’s figures or revise them upwards if market dynamics push in that direction.

But the picture is already quite clear. As mentioned, both BTps have a five-year maturity. The timeframe set by the Treasury is therefore relatively short, falling within the traditional range of retail-oriented BTps, which generally varies between four and eight years. This choice is driven by bond market yields, fuelled by the energy crisis which is stoking expectations of inflation and interest rate rises by central banks. However, a shorter time horizon is also the best fit for the launch of the key innovation in this unprecedented dual-tranche issue for retail investors.This is provided by the ‘BTp Valore Insieme’, which, for the first time in a bond dedicated to the retail market, dispenses with periodic coupon payments and concentrates the return at maturity. The final lump-sum payment is not simply the algebraic sum of the quarterly coupon payments from the traditional BTp Valore. This difference – which is, of course, positive – recognises the value of time, that is, the waiting period required of savers who might otherwise reinvest (or spend) the quarterly coupons, which, as always, grow over time, as guaranteed by the more traditional counterpart, which is also on offer from next Monday to Friday.

From a financial point of view, the yields on the two BTps are equivalent, and amount to a gross annual rate of 4.1 per cent: this therefore affords subscribers to the ‘Valore’ the usual, small premium compared with ordinary BTps of the same maturity, which were trading at around 3.95 per cent yesterday.The difference can be seen by simply dividing the total yield by the number of years, which, compared to the 4.1 per cent of the traditional BTP, translates to 4.45 per cent for the single-coupon bond. However, a comparison of this kind is only useful for measuring the time value that ‘Valore’ BTp subscribers must collectively wait to receive their payment, alongside the full repayment of the capital invested. The effective internal rate of return, which discounts the calculations to the end of the five-year term, is precisely 4.1 per cent in both cases. The need for a coupon income stream to supplement one’s income favours the traditional BTp; a preference for a guaranteed return at the five-year mark points towards the ‘Valore Insieme’.

In any case, both securities can be sold (and purchased) on the secondary market at any time, as is the case with all BTps. In the event of an early sale of the Valore Insieme, the investor will receive a share of the expected total return, calculated in proportion to the period during which the BTp was held in their securities account. The choice between the two BTps, moreover, is not a binary choice: each will have a life entirely independent of the other and its own ISIN code, meaning that interested savers may purchase one or both securities, allocating the invested capital as they see fit. Otherwise, the new offering follows the traditional procedures. Purchases, with a minimum denomination of €1,000 as always, are made at par and commission-free during the week of issue. Both the quarterly returns on the classic BTp Valore and the final return on the Valore Insieme are subject to the preferential tax rate of 12.5 per cent and are exempt from inheritance tax. Portfolios of up to 50,000 euros are not included in the calculation of the Equivalent Economic Situation Indicator (ISEE).