Why is it still worth investing savings in BTPs? In recent days, the Treasury has made a new operation. It has issued BTPs at a particularly low rate. Artificially low rate, remember that. Because with the ECB’s purchases of our government bonds, thank goodness, rates and spreads are lower. And a lot. Suffice it to say that the thirty year old is below 2%. However, the appetite of investors has not stopped. Despite extremely low yields, demand exceeded supply by 50%.
But how low are these returns? The 7-year BTP was halved. It now returns 0.75% compared to 1.53% in May. And on the secondary, where the ECB also acts, it was also above 2%. The ten-year, the one that defines the spread, did not go to auction. But on the secondary it is just over 1%. And he too was well above 2% in May. And in full panic from Covid-19 it was above 2%.
What is going on?
Easy enough. The market recognizes an award to Italy. An award due upon acceptance of the Recovery Fund. And the 209 billion that will arrive (fake it, but so much for the mass media). Prize that could even rise in the fall. If we do not have all the problems that appear on the horizon, including referendums, general strikes and local elections.
Be that as it may, there is no doubt that the longa manus of the ECB has clearly shown itself. Since the beginning of the year, Frankfurt has purchased 120 billion of Italian debt. This between QE and PEPP, the new extraordinary purchasing plan. With the Recovery Fund just mentioned, it was really a significant double help to the Italian accounts.
For investors who believed in Italian fixed income (very helpful, as we have just seen), it was a great gift. But there are other things that favor Italian returns at the moment. The weakness of the dollar, of course. And the very low value of US T-bonds. That makes 0.7% poor. In comparison, just over 1% of Italian stocks are manna from heaven. Obviously for those who invest in fixed income investment grade. And the BTP is denominated in euros. Which continues to appreciate on the dollar.
Why is it still worth investing savings in BTPs?
Triple motivation. Interesting rates compared to others. Room for further capital gains if they drop again. Further possible currency appreciation (if the euro continues to rise). And with the risk of Europe becoming a prize… well, “Italy is the place to be”.
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