Investing €10,000 in CDP’s New Bond Could Earn You €150 More Than BTP 2031

Maximizing Your Investment Portfolio: CDP Bond vs.
BTP 2031

Investing €10,000 in the new CDP bond can potentially earn you an extra €150 compared to the BTP 2031.
In a continuously evolving economic environment, choosing the right financial instruments to maximize your portfolio returns is crucial.
Bonds remain a favored choice for investors seeking stable and predictable returns, although the prospect of further interest rate cuts by the ECB may impact yields.
The recent issuance of a new bond by Cassa depositi e prestiti (CDP) has garnered significant interest among institutional investors.

The New CDP Bond

CDP recently launched a new bond with a seven-year maturity, expiring on July 12, 2031.
The €750 million issuance was successfully placed, reserved for institutional investors.
The bond offers an annual coupon of 3.875%.

The participation was substantial, with around 100 institutional investors involved and demand exceeding the available supply by over 3.7 times.
The placement was managed by leading financial institutions such as Banca Akros, Monte dei Paschi di Siena, BPER Banca, Crédit Agricole, Deutsche Bank, Intesa Sanpaolo, Morgan Stanley, and UniCredit, acting as Joint Lead Managers and Joint Bookrunners.

An advantage of the CDP bond is the favorable tax treatment, the same as that reserved for government bonds, thanks to Treasury oversight.
The bond yields are subject to a 12.50% tax rate, lower than the 26% applied to private bonds, making this issuance particularly attractive to investors.

Evaluating Returns

Comparing the return on investment between the new CDP bond and the BTP 2031 can help determine the more lucrative option.

The BTP 2031 is an Italian government bond with an annual coupon of 3.45% and a gross yield of 3.62%.
After applying the 12.5% tax rate, the net annual yield reduces to approximately 3.17%.
If you invest €10,000, the net annual gain would be around €317.
Projecting this yield over the remaining seven years, the total gain would be approximately €2,219.

The new CDP bond offers an annual coupon of 3.875%.
Following the same tax rate, the net annual yield is about 3.39%.
Investing €10,000 would result in a net annual gain of around €339.
Over seven years, this translates to a total gain of about €2,373.

Comparing the two securities, it’s evident that the CDP bond offers a higher net yield than the BTP 2031.

In terms of overall gains, opting for the CDP bond could yield approximately €154 more than investing in the BTP 2031 over a seven-year period.

It’s important to note that the CDP bond is reserved for institutional investors, restricting direct retail investor access.
Additionally, assessing the central bank’s monetary policy evolution is crucial.
If the ECB were to cut interest rates by 0.5%, the price of the BTP 2031 could rise by 3-3.2%, from around 98.95 to approximately 102.

In this scenario, one strategy could involve selling the security before maturity to realize a capital gain, in addition to the coupon payments received during the investment period.

For further insights, consider reading about French bond investments post-elections.

DISCLAIMER: The information provided in this article should not be the sole basis for investment decisions.
The reader retains full freedom in their investment choices and the complete responsibility in executing them, as only they know their risk tolerance and time horizon.
The information is for informational purposes only and its disclosure does not constitute an offer or solicitation for public savings.