These days, investing in bonds and having attractive returns it is an enterprise bordering on the impossible. By attractive returns we mean 3 or 4 percentage points per year. The ProiezionidiBorsa Research Department analyzed the BTP with the highest yield on the market among all government bonds. Here is the best government bond with the highest yield and the positive and negative aspects of a possible bond investment.
Here is the best government bond with the highest yield
Today, in order to obtain interest rates above the market average, it is necessary to focus on corporate bonds, or bonds issued by private companies. Of course, higher yielding bonds carry greater risk. In finance, the fundamental rule is that to have increasing returns, you need to take increasing risks.
But what if we don’t feel like taking this risk and want to stay on government bonds? In this case, the multi-year Treasury bill with the highest yield is the BTP maturing in March 2067 (Isin: IT0005217390).
This government bond was issued in 2016 and is the first BTP to have a 50-year duration. It has a 2.8% coupon which is distributed every six months, half in March and half in September. At the time of the analysis, it stands at 131.7 cents and has a gross yield of 1.8%. Net of taxation, the yield to maturity drops to 1.5%.
Pay attention to performance
Attention, at maturity it means that to be sure of the 1.5% net yield, the bond must be held until its redemption date. This will happen in March 2067, in 47 years. If the bond is sold first, the yield changes depending on the sale price.
In case of sale of the BTP before maturity, if the sale price is higher than the purchase value, the yield will be higher. Vice versa in case of sale at a lower price.
Here lies the first risk. The price of 131.7 cents is a step away from an all-time high of 132 cents. Prices had never gone so high. But how long can they still appreciate? The stock recovered all the losses of the collapse of late February and early March. It is currently well above the levels of January 2020, then already at an all-time high.
In conclusion
The BTP maturing 2067 is certainly the government bond that has the highest yield. But by buying it at these prices, the possibility of a loss at the time of sale is high. Especially if in a couple of years inflation starts to rise again and the ECB starts to raise interest rates. For all fixed-rate securities it would be painful. Especially for this.
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