Falling prices can be an opportunity to invest fresh savings. The map of Italian yields that fluctuate between 2 and 3.5 percent
The market values of government bonds have suffered a decline, after months of generalized and almost continuous rise. What needs to be done? Worry about losses (theoretical until you sell) or take advantage of the “discounted” prices? Accessing your securities portfolio and seeing any capital losses is never pleasant. Even if it is a problem destined to disappear: along the way with recoveries that can bring the prices back well above 100. Or to reimbursement, if the investor keeps the instruments in the portfolio until the natural maturity to get the capital back to 100.
The glass half full
Then there’s the glass half full. If the market value of government bonds has fallen and were to decline further, it could be a good strategy to increase their nominal value in the portfolio. In such a way that, on the redemption date, you benefit from a credit of a higher value, after having collected the accrual of coupons which are increasingly larger than the initial ones. There is no doubt that this is an interesting idea, often implemented by investors, because the quarterly or semi-annual coupon flow represents, in any case, an income that contributes to increasing spending capacity, or the opportunity to make further investments.
The crisis, therefore, is also a window to evaluate for those who have uninvested money, net of the strong volatility and nervousness of the markets. And as we know, the decline in values corresponds to an increase in returns.
From four to nine years
For those who therefore want to accumulate by taking advantage of the “discounts” offered by the storm caused by the war and by worries about the world economy, the repayment dates to which a part of the available assets can be entrusted are those between four and nine years. A medium-long time frame, which offers remunerations of around 3-3.5% and which, in any case, are lower than those of a year ago. If you opt for the shortest part of the curve, the one less than three years, the yield falls below 3%, but is higher than that of 12 months ago. Over three years, for example, today we are at 2.7%, in April of a year ago it was 2.4%.
The table shows the options for investing in BTPs on various maturities. Faced with the truce that has allowed the markets to breathe, but which certainly does not remove the threat of a revival of inflation from the horizon, variable rate securities, such as CCTs or step up securities, i.e. with an established plan of increasing coupons, such as the BTP Valore, should also be taken into consideration. Anyone wishing to purchase the latter on the market will not be entitled to the final premium at the time of reimbursement, which is only available to private individuals who purchased them during the placement phase, but can “replace” the increase with a discount on the price. Putting in your pocket – in the case of the newly placed BTP Valore which has fallen below 100 in recent days – an issue with higher-than-expected rising coupons, established precisely at the moment in which the crisis broke out in the Middle East.
Comparison and profitability
The investment in Italian government bonds, it should be remembered, offers two particularly appreciable aspects. Profitability at a higher level than that of German or French issues, but with a gradually decreasing differential, thanks to the increase in the degree of reliability attributed to Italian government issues. A positive review by the rating agencies cannot be ruled out during this year. At the moment only one has assigned a single A to the Italian public debt, but nothing prevents others from deciding to reward the Treasury’s strategy in the coming months. Although, as we have seen clearly in recent days, when storms break out our huge debt immediately puts us back on the list of those called to pay a greater forfeit to the worried markets.
