The exit march from negative yields – which for 10-year and longer-term bonds has also started well in Germany, while in Italy the 10-year BTP has never dropped below zero – looks long and probably bumpy for short-term issues, such as Bots. at 6 and 12 months. In fact, the Ministry of Economy offered in the first installment the half-yearly BOTs maturing on 29 July 2022 for a value of 6 billion. Market demand was, as always, lively and higher than the amount offered, with demand for securities for a value of over 8.5 billion. On the yield front, on the other hand, despite a very slight increase, there are no significant changes. The weighted average yield of the auction was in fact negative (-0.488%) although up by 5 basis points (one basis point is equivalent to 1 hundredth of a percentage point) compared to the previous auction on November 26, when the yield stood at -0.533%.
The loss on 10 thousand euros of about 25 euros
The substance for private savers does not change. The ancient Bot people of the 1980s – who were accustomed to earning double-digit returns from bot auctions – would fail to notice that short-term Treasury issues offer a negative rate of about half a percentage point. In practice, an investor who for six months places 10 thousand euros on the Treasury bond, at the end of the operation will find himself with a capital of 9,975 euros, with a net loss of about 25 euros. In fact, 0.5% of 10 thousand euros corresponds to 50 euros, but dividing the sum by 2 (the expiry of 6 months, not 12), we arrive at this sum. The difference in yield (in this case of loss) compared to the previous auction of semi-annual Bots of a few tens of cents.
But didn’t we say that rates were going up?
The scenario of evolution of interest rates and bond yields is rapidly changing, especially in the United States. Fed chairman Jerome Powell hinted clearly on January 26 that March will see the first rate hike since 2018 and another 2-3 tweaks should follow during the year. US rates currently at 0.25% are expected to move towards 1% by the end of 2022. The upward movement in government bond yields – not yet the official interest rates set by the Central Bank, are different things – also evident. in Europe. In recent days, the 10-year German Bund for the first time in about 3 years returned for a moment to offer a positive yield of 0.15%: it was still negative by about half a point last November. A lot (or very little!) For a 10-year title. But the movement of market rates, which are determined on the basis of the purchase and sale of securities in daily trading, reflects the expectations of operators who, faced with European inflation of almost 5%, are pushing for a recovery in yields.
The ECB: rates steady for the whole of 2022
The ECB, which among other things determines the rate at which banks can borrow money from the Central Institute itself – unlike the Fed – does not move from its positions: it seems confirmed that European rates will be zero for the whole of 2022. Thus, in Europe, and therefore also in Italy, which is an integral part of the eurozone, we are witnessing a slight recovery in long-term yields (10 years and more) but at a substantial immobility of rates and yields shortly (6-12 months). The 10-year BTP, a medium-long term security, has had yields that have risen for many weeks and has recently reached the 1.4% threshold (the ten-year Bund at zero, let’s remember). However, the country risk variable weighs on the yield of the Italian stock: who will be the new President of the Republic?
If the 10-year Bund at zero and the 10-year BTP at 1.40%, what is the spread? Obviously the differential of 140 points (which in the morning came to close to 150).
Btp Italia and Btp Futura to protect capital
The conclusion that Italian or European government issues can be a good parking lot for liquidity – and are therefore widely used by professional investors, companies and funds – but do not offer savers yields capable of coping with the 4% inflation rate. With the current yield on the BTP and inflation at 4%, the real interest rate (net of inflation) of the Italian 10-year bond is -3%. The real interest rate, return net of inflation, of the 6-month Bot is even -4.5% (the half-yearly Bot yields about -0.5%). The Bot people – or their heirs – unfortunately will have to deal with it, at least until the monetary policy of the ECB changes. In the meantime, to defend the real value of their capital, they can look to other instruments: such as the Italian BTP, whose coupon is linked to the Italian inflation rate + a premium, or the long-term BTP Futura, with a coupon linked to the GDP growth rate. Italian.