Tomorrow’s BOT Auction June 9, 2023: Expected Return of up to 3.6% for 12 months

It is true that the attention of all investors is focused on the issue of the first BTP Valore, however, and rightly so, some saving friends urged us not to forget that June 9, 2023 will be held tomorrow. First BOT auction of the month. As always, the appointment is reserved for the 12-month Treasury note. It will be a new issue and therefore a new safe haven in which savings will be made while also getting a respectable return.

And here we already imagine what some friends are thinking: we are talking about expected returns which, after all, when we are talking about zero-coupon securities like BOTs, is the only parameter that matters.

We share the approach but, as always, we believe we can’t talk about yield hypotheses without keeping in mind the BOT properties that will be put in place tomorrow. Let’s start here.

The BOT auction is tomorrow 9th June 2023 on the closing day of the BTP Valore issue

Tomorrow June 9th is not only the day of the annual BOT auction but also the closing date for the BTP Valore issuance (provided there are no surprises from the treasury who reserved the right to close the offering early). The closeness of the dates should not create any problems for the BOT auction. There might have been problems a couple of years ago, when Treasury bill yields were often negative, but certainly not now.

So the appeal will be high.

However, 6.5 billion BOTs will be issued for a period of 12 months. The amount is high, which indicates the confidence the Treasury places in the case (and is not usually deceived by the MEF).

The BOTs that will be placed tomorrow expire on June 14, 2024 while the settlement date is June 14 of the current year. As can be seen from the profile posted on the following BOT auction page, the security term is 366 days…but isn’t the year 365?. The year 2024 is not a leap year, hence the peculiarity of tomorrow’s release.

Tomorrow’s BOT Auction June 9, 2023: Expected Returns and Goals

What can we expect on the yield front from tomorrow’s BOT auction June 9, 2023?

Immediate good news: the honeymoon with payoff is by no means over, on the contrary. Have you heard about the latest positions taken by the accredited members of the BCE Board of Directors and Lagarde herself?

the President of the Croatian Central Bank, Boris Vujic He said clearly that inflation risks accelerating again and therefore higher rates are necessary while the governor specified that EuroTower would continue to “take a data-driven approach to determine the appropriate level and duration of restraint”.

So the 2023 BOT yield forecast remains very valid. Thus, in the context of the auction tomorrow, June 9, we expect that A Yield in the range 3.5%-3.6% Which means a pricing of 96/97 euros.

A rate that can be as high as 3.6% for 12 months in these times of high inflation can turn up one’s nose (it would have been pure gold until a couple of years ago…). However, we invite you to note that if it is true that 3.6% currently does nothing against inflation of 7.6% (data for May), it is also true that consumer price estimates for the coming months are all down. The ECB’s target for 2024 is 2%. It is unlikely to materialize, but even if you reach 2.5% / 3%, it is convenient to have a BOT in the portfolio that can achieve 3.6% for 12 months. Hence there is always the possibility of selling BOTs before expiry if the scenario is going to develop in the opposite direction to that considered.

As always, everything depends on the ECB’s moves and the level of interest rates listed by the markets. This is what determines, in general, the expected return from BOTs in an auction.

Be careful because from now on every ECB Governing Council could mark the end of the high yield season for BOTs.