Acceleration of the nationalization of public debt

Acceleration of the nationalization of public debt

Joseph Tempone

3 minutes ago –

May 12, 2023 6:11 a.m

Placing the first one starts on June 5th and ends on June 9th BTp value. It has a term of 4 years and coupon increases, and it also recognizes a loyalty bonus for its so-called “drawer-keeper” subscribers. It is aimed exclusively at individual investors, that is, families. It will be possible to book it without restrictions on the amount at the bank, post office or simply from your online account, if it is enabled for the functions home banking services. There will be no fees to pay for Subscriptions at the placement stage. As always, the new bond will subsequently be listed on the Telematic Bond Market of the Borsa Italia, where it can be bought and resold. The minimum bookable amount is fixed at €1,000 and multiples of this number. Finally, the vouchers and loyalty bonus entity, as well as the ISIN code, will be revealed on the Thursday before the start of the placement, i.e. June 1.

The third type of retail bond

BTp Valore is the third type of Italian government bond targeting the channel selling by pieces.

First it was BTp Italia in 2012, then in 2020 there was BTp Futura. The second version is no longer released after the fourth order in 2021. We’ll see if this new formula will be more successful. The only certain thing is that its release is part of the Italian government’s strategy to “nationalize” Public debt. As of January 31, nearly 730 billion euros were in the hands of foreign creditors, ie 26.5% of the total shares.

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In 2010, the peak was 52%. The belief is that the stake currently includes Italian government bonds that were bought by the European Central Bank (ECB) as a result of the two monetary programs launched over the years to stimulate inflation: quantitative easing (QE) and PEPP.

And between 2010 and 2011, BTPs were also purchased under the Stock Markets Program, which aims to counteract Margins rise in Southern Europe. But last week, the European Central Bank itself announced that, starting in July, it will stop reinvesting bonds in its portfolio with quantitative easing. For Italy, that would mean cutting out an almost essential component of demand for its sovereign bonds.

BTp Valore, Government Goal: To highlight the positive trend in retail

Therefore, the launch of BTp Valore is basically energizing domestic demand for government bonds. The numbers give hope to the government. In January of this year, households held just over €213 billion in BTPs. This amount amounted to 8.4% of the total inventory. Thus, on an annual basis, there was a jump of 69.12 billion. At the beginning of 2022, the share of public debt owned by households was 5.3%. In twelve months, the stock appears to be up about 35 billion. This means, therefore, that the main purchases of BTPs among households were equal to 200% of the increase in debt.

Interest in government bonds has revived after a decade of hibernation. What happened? Yields rose with inflation, also because the European Central Bank raised interest rates in a few months from zero to 3.75%. Before the monetary tightening began, the 10-year BTP yield was less than 1%, and today it is around 4.20%.

Relatively safe alternatives such as i Deposit accounts They didn’t keep up. The rates offered by banks to customers have grown by a few decimal places on average. It is only natural that the demand for government bonds will return. BTp Valore fits into this climate of rediscovered Italian desire for investment. And if BTp Italia slows down lending due to coupon indexation for inflation, this new asset guarantees a certain and gradual return over time.

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Pros and cons of government strategy

It will not be the solution to the difference. BTp Valore will be able to help increase the debt share in Italian hands.

This in and of itself would be neither a good nor a bad thing. Whether they are citizens or foreigners, they are always creditors. The benefit of having many households investing in government bonds is mainly that the latter is mostly subtracted from speculation in the markets. Individual investors are less likely to buy and sell in the secondary. The downside is that they generally only lend money to the government when prices seem appropriately high. In short, it would not be possible to rely on families alone. Only wise financial will contain refinancing costs.

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