BTP, is a higher coupon better or more money at maturity? 10 titles to find out

When investing in BTPs it is essential to understand when it is better to aim for a higher coupon and when, instead, to aim to receive more money at maturity, therefore favoring capital gains.
In recent months, interest in BTPs and the returns they are capable of offering has returned, accompanied by one of the lowest risks on the market.
In fact, thanks to the increase in interest rates, the yields on government bonds have also started to rise, providing savers with the necessary push to dedicate part of their portfolio to investing in BTPs.
A dynamic that we have not seen for almost 10 years now, characterized by ECB rates close to zero.
Although the yields on long-term securities (10 years and more) are now falling from their highs to well over 4%, coupons continue to be tempting, especially in view of a possible reduction in rates – and therefore an increase in prices – already in place for weeks.
BTP: better a high coupon or more money at maturity? Before answering the question whether it is better to aim for a higher coupon immediately or opt for a greater repayment at maturity, it is necessary to understand the dynamics that generally characterize the secondary market of government bonds, where purchases and sales outside of the MEF auctions.
Usually, securities that offer a higher coupon also have a higher price, above par (100).
They cost more and to purchase them you need to spend a higher amount than the nominal value.
BTPs can be subscribed for a minimum nominal value of 1,000 euros or multiples of this amount.
But if the stock is listed on the secondary market, the market sets the price.
If, for example, the price of the BTP we want to buy is 105, to acquire a nominal value of 1,000 we are forced to spend 1,050 euros.
read also Government Bonds, 2024 calendar of auctions in Italy In other words, 1,000 euros is the capital that is repaid if the bond is brought to maturity.
1,050 euros is the amount we had to spend to have the right to be reimbursed 1,000 euros upon maturity.
Not considering the contribution of coupons, which at current levels make the investment convenient, this example would result in a loss of 50 euros.
On the other hand, securities that offer a lower coupon tend to trade below par, with a price lower than 100.
If the chosen BTP is at 95, we will not spend 1,000 euros to purchase the same amount of nominal value, but 950 euros.
At maturity, despite having paid less for the security on the market, you will be entitled to be reimbursed based on the nominal value, i.e.
1,000.
In this example, there would be a gain of 50 euros just for having brought the security to maturity.
And this is where we find the central point to understand, in general, whether it is better to focus on the coupon or the capital gain.
The answer is, as often happens, “it depends”.
This is because generally, especially in long deadlines, the two situations are equivalent.
On the one hand there are those who aim for the highest coupon, therefore over the years they receive higher coupon amounts, from which however the loss generated at maturity must be deducted to arrive at the effective net yield.
And on the other hand there are those who aim for a higher repayment at maturity, who however benefit from decidedly lower coupon rates.
When it is better to aim for capital gain Aiming for a higher repayment at maturity – and therefore benefiting from lower coupons – is a strategy that is well suited to the saver who aims for capital gain.
In the event that interest rates were to increase, the BTPs that aim for capital gain will depreciate more than those with a higher coupon.
But, equally, with rates falling, the appreciation becomes more evident.
In 2024, prices are expected to rise and interest rates on BTPs to fall.
Attention: longer-term BTPs, which today quote below 100 and guarantee a good net return, are more exposed to price fluctuations.
This is not a problem if you hold the bond to maturity, as you will always be reimbursed the face value.
The risk that remains, and which in any case must be considered, is that the Italian State will not be able to repay its creditors.
Market fluctuations, on the other hand, have a significant impact if BTPs are purchased without the idea of bringing them to maturity.
In 2022, with the increase in interest rates, the price of long-term BTPs collapsed.
When is it worth aiming for a high coupon Bonds that offer a high coupon rate also have a higher price.
Aiming for a higher coupon on BTPs is equivalent to enjoying a higher annual income.
This approach appears suitable for savers who aim to accumulate returns without necessarily the prospect of reinvesting.
It is not mandatory to aim for expiry: it is possible to resell your exposure on the market, especially if the sale price is higher than the purchase price.
If, however, you decide to reach maturity, the loss generated as the difference between the purchase price (above 100) and the redemption value can be included in the tax return as a tax credit.
read also Which BTPs to buy today (and quickly) Which BTPs should be bought in 2024 A downward channel is already underway on the yield front, and an increase in prices.
In this context, securities with low coupons (and higher prices) appear more convenient – in the medium term – than BTPs with higher coupons, because interest rates seem to have reached their maximums.
In fact, it is the securities with the lowest coupon that benefit most in an environment in which central banks start cutting rates again.
The BTPs to buy today to aim for capital at maturity Below, a selection of low coupon BTPs on which, to date, you can enjoy a net return of at least 4%, i.e.
the annual percentage gain net of taxes in the case of BTPs bought on the market and held until maturity: BTP Tf 0.95% Mz37 ISIN: IT0005421703 Maturity: March 2037 Residual duration: 13.12 years Price: 69.44 Coupon rate: 0.95% Net yield: 4.12 % Btp Tf 0.95% Mz37 ISIN: IT0005421703 Maturity: March 2037 Residual duration: 13.12 years Price: 69.44 Coupon rate: 0.95% Net yield: 4.12% Btpgreen 1.5%Ap45eur ISIN: IT0005438004 Maturity: April 2045 Residual duration: 21.21 years Price: 62.44 Coupon rate: 1.5% Net yield: 4.58% Btp Tf 1.7% St51 ISIN: IT0005425233 Maturity: September 2051 Residual duration: 27.63 years Price: 60.29 Coupon rate: 1.7% Net yield: 4.55% Btp Tf 1.8% Mz41 ISIN: IT0005421703 Maturity: March 2041 Residual duration: 17.12 years Price: 71.45 Coupon rate: 1 .80% Net yield: 4.24% The BTPs to buy today to aim for the coupon Below, however, is a selection of securities with the highest coupon available on the secondary market.
Please note: the following titles are excluded from the CACs (collective action clauses).
This means that the State has the possibility of asking bondholders to accept changes to the conditions of the bond, such as a cut in its nominal value, an extension of the maturity or a reduction in the coupon rate.
Btp-1nv26 7.25% ISIN: IT0001086567 Maturity: November 2026 Residual duration: 2.79 years Price: 111.58 Coupon rate: 7.25% Net yield: 2.43% Btp-1nv27 6.5% ISIN: IT0001174611 Maturity: November 2027 Residual duration: 3.79 years Price: 112.51 Coupon rate: 6.5% Net yield: 2.49% Btp-1mg31 6% ISIN: IT0001444378 Maturity: May 2031 Residual duration: 7.29 years Price : 116.80 Coupon rate: 6.0% Net yield: 2.76% Btp-1fb33 5.75% ISIN: IT0003256820 Maturity: February 2033 Residual duration: 9.05 years Price: 116.11 Coupon rate: 5.75 % Net yield: 2.99% Btp-1nv29 5.25% ISIN: IT0001278511 Maturity: November 2029 Residual duration: 5.79 years Price: 110.68 Coupon rate: 5.25% Net yield: 2.69% Updated quotes as of 15/01/2024 3.15pm DISCLAIMER The information and considerations contained in this article must not be used as the sole or main support on which to make decisions relating to investments.
The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon.
The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings.