The Ministry of Economy and Finance returns to the market with a new medium and long-term issue, inserted in a context in which government bond yields continue to remain at high levels compared to the average of recent years. Demand for BTPs remains solid, especially on intermediate maturities, while on very long maturities the Treasury is progressively rebuilding liquidity after the rate shocks of the last two years.
The new round of auctions includes four different titles:
- a 3-year BTP;
- two lines at 7 years;
- a 30-year BTP with a coupon of 4.65%.
The real news concerns precisely this last title, which has just been admitted to the competition strippinga feature widely used by institutional investors who require high-performance tools duration.
The release calendar
As foreseen by the official calendar, the booking phase for the public closed on 12 November at banks and authorized intermediaries. This is the window in which savers who wish to participate in new BTP issues at auction prices can reserve the securities before competition between operators begins.
November 13th is the day for the submission of applications by specialists and aspiring specialists, who must send their price proposals by 11 am. There can be up to 5 offers for each title, each with a different price.
Tomorrow, November 14th, the supplementary auction is scheduled, reserved exclusively for operators who participated in the ordinary one.
The settlement will take place on November 17th, the date on which the award prices plus accrued interest will be paid.
3 year BTP with 2.35% coupon
The 3-year BTP (ISIN IT0005660052), now in its seventh tranche, offers an annual coupon of 2.35% and expires on 15 January 2029.
In a phase in which the ECB is cautious on rates, short maturities are a tactical refuge with less exposure to duration, less volatility and greater visibility on flows.
The characteristics of the title are:
- expires 01/15/2029;
- 2.35% coupon;
- amount offered between 3 and 3.5 billion;
- 125 days accrued;
- 0.10% commission
Two 7-year BTPs with a 3.25% coupon
The Treasury is auctioning two 7-year lines, both with a 3.25% coupon, but with different histories and structures. The 2032 maturity is today one of the most liquid segments of the BTP market, which attracts institutional and retail investors thanks to the best compromise between yield and rate risk.
The characteristics of the 7-year BTP (ISIN IT0005668220), fourth tranche, are:
- expires 11/15/2032;
- 3.25% coupon;
- amount offered between 1.25 and 1.5 billion;
- 2 days accrual;
- commission of 0.15%.
The characteristics of the 7-year BTP (ISIN IT0005647265), eighth tranche, are:
- expires 7/15/2032;
- 3.25% coupon;
- amount offered between 1.25 and 1.5 billion;
- 125 days accrued;
- commission of 0.15%.
30 year BTP with 4.65% coupon and stripping
The most anticipated security is the 30-year BTP (ISIN IT0005668238). It is mainly intended for very long-term investors, such as insurance companies and pension funds.
The most important news is that from this issue the security is eligible for stripping.
Stripping is a procedure that allows a BTP to be dismantled into its components – the individual future coupons and the repayment of the capital at maturity. These elements become autonomous securities, called Strips, each with its own maturity and its own price.
The investor can thus purchase only the interest part, or only the final capital, obtaining extremely precise exposure to the interest rate curve.
The features are:
- expires 10/1/2055;
- 4.65% coupon;
- amount offered between 1 and 1.5 billion;
- 47 days accrued;
- commission of 0.35%.
How the auction works
The Mef uses the marginal auction mechanism, where all accepted offers are awarded at the lowest price among those that allow the quantity offered to be placed. The Treasury maintains a margin of discretion in defining both the quantity and the award price, based on market conditions.
Each operator can submit up to 5 price proposals for each security, with amounts not less than 500,000 euros. Offers considered too distant from market values may be excluded.
The additional auction on November 14th will be reserved only for operators who participated in the ordinary phase and is equal to 20% of the maximum amount put up for auction.
