BTP: Are You Ready to Invest in 7-Year Bonds? Institutional Players Dive In
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The Growing Trend of Bond Copycatting
In recent times, the practice of mimicking institutional choices, commonly seen in equity markets, is now creeping into the bond market.
Currently, fund managers and financial instrument operators are heavily investing in the 7-year maturity segment within the BTPs (Buoni del Tesoro Poliennali).
Why the 7-Year Maturity is Favorable
Amid anticipations of yield curve normalization, especially for Italian bonds, the segment between 3 and 7 years appears particularly alluring.
This range not only marks a potential turning point towards a typical future inclination but also boasts an excellent risk-reward ratio.
The current 7-year BTP offers a yield of 3.1%, compared to 3.5% for the 10-year bond and 3.9% for the 50-year bond.
It is evident that this specific maturity fits perfectly for large portfolios, making it equally suitable for small and medium investors.
The New BTP 3.15% 2031
Reflecting this interest is the newly issued BTP maturing in 2031, soon to be listed on the Italian Stock Exchange.
Its key features include:
- ISIN: IT0005619546 – Maturity date: 15/11/2031 – Coupon rate: 3.15% (with an initial ultra-short coupon of 0.145516% on 15/11/2024)
- Subsequent payments on May 15 and November 15 each year
- Adjudicated price: 99.831 EUR
Given the uncertain trajectory of monetary policy in the upcoming months, this new BTP might debut on the secondary market around 100 EUR.
This would represent a tempting opportunity, reinforcing the recent institutional strategies during auction phases.
Other BTPs maturing in 2031 on the MOT
There are already six different BTPs maturing in 2031 available on the Italian Stock Exchange, with fairly varied characteristics.
Notably, we set aside the 6% bond (ISIN: IT0001444378) priced over 117 EUR, which is quite high.
Here are some attractive alternatives:
- Highest coupon: BTP 3.5% February 2031 (ISIN: IT0005580094) – Priced at 102.6 EUR – Current gross yield: 3.1%
- Lowest price: BTP 0.6% August 2031 (ISIN: IT0005436693) – Priced at 85 EUR – Current gross yield: 3.1%
- Highest yield: BTP 3.45% July 2031 (ISIN: IT0005595803) – Priced at 102.1 EUR – Current gross yield: 3.14%
- Longest maturity: BTP 0.95% December 2031 (ISIN: IT0005449969) – Priced at 86.4 EUR – Current gross yield: 3.13%
Dividing Funds Between Two Maturities
The choices are plentiful, allowing investors to find the most suitable option based on their portfolio strategies.
A prudent approach may involve distributing investments across two different 2031 issues.
For instance, one could consider the 3.5% bond to secure the higher coupon and the 0.6% bond to take advantage of the lower price.
Once it is traded on the MOT, the 3.15% BTP should also be evaluated, ideally if purchased below 100 EUR.
No Concerns Regarding Redemption
An undeniable advantage of the 2031 option is the reduced uncertainty surrounding redemption compared to shorter BTPs.
With a 7-year horizon, investors can anticipate more stable interest rate environments, potentially leading to further opportunities in the current favorable risk/yield context.
Disclaimer
The information and views expressed in this article should not be used as the sole basis for making investment decisions.
The reader retains full autonomy in their investment choices and assumes full responsibility, as they alone understand their risk tolerance and time horizon.
The information contained herein is for informational purposes only, and its dissemination does not constitute an offer or solicitation for public savings.
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