BTP Valore: a success that makes it better than the “European Funds”

Record numbers for the second issue of the BTP Valore, the government bond that won over small savers with the promise of a substantial final loyalty bonus on the invested capital. The placement, which began on October 2nd, closed today, Friday October 6th 2023, with a collection of 17,190.004 million euros and 641,881 registered contracts. These impressive data were announced by the Ministry of Economy, which underlined the innovation of this second issue: the quarterly coupons.

It is important to note that this is the second best result ever among the Treasury's retail issues, surpassed only by the first BTP Valore, which raised 18.19 billion euros through 654,675 contracts last June.

The BTP Valore has a duration of 5 years and offers increasing returns over time, but what has really captured the attention of investors is the generous final loyalty bonus, equal to 0.5% of the invested capital, for those who decide to keep it until the deadline.

The definitive annual rates of the security have been confirmed, following the forecasts announced on September 29:

• 4.10% for the 1st, 2nd and 3rd year;
• 4.50% for the 4th and 5th year.

Why such a resounding success? The answer lies in the choice of small investors, notoriously inclined to avoid risks and protect their savings from inflation. Faced with the geopolitical and economic uncertainty that characterizes the current moment, they preferred to rely on a financial instrument with guaranteed capital, demonstrating great interest in the BTP Valore.

These resources are much better than those of the Next Generation EU European funds

The State is better off with this BTP Italia or the European financing of the Next Generation EU, the famous funds that generated the PNRR, presented as the savior of the country.

Let's see the comparative returns of European and Italian five-year bonds

In theory, the yield on Italian five-year bonds (not Value, but generic ones) is much higher than that of other securities, even if there are some curious differences which we will talk about later. The spread with the return of the Value in the first three years would be even lower.

However, the spread with Nex Gen EU securities would be 90 bps, 74 bps when compared to Value. However, we must consider some points that make the value more convenient:

• the mark-up on Italy is NOT exactly that of the European title, but is slightly higher because some PB is added to cover the costs borne by the Commission;
• the Valore title is dedicated to Italy, therefore taxed at 12.5% ​​for the residents of Italy to whom it was aimed. The MEF takes this figure back, so the net yield is lower, and is around 3.59%;
• This money from the coupons will either become savings, therefore purchases of other securities, or they will be spent. If they were spent on the worst thing possible for the economy, for example junk bought from China, the state would still take 22% VAT on this amount. However, they could be better spent for the State, for example on a coffee at the bar, on which there is a higher tax burden, to buy petrol or pay bills, which also have higher tax burdens. The 3.59% net is actually, for the Italian state, much, much less. The returns from European securities go to large international investors who DO NOT spend them in Italy.
• The money acquired with the BTP Valore IS NOT BOUND to abstruse, complex and often unachievable European objectives. They are free to be invested as we want: roads, railways, schools, renovations, bonuses. If the state decides tomorrow to build a refinery because the return on the investment is high and we lack diesel, it can do it. Of course, it would be better for this money to be invested in something that, over time, would have a higher return at GDP level than the almost zero return on investments allowed by the PNRR.

The BTP Valore is an excellent move and shows how you have to ask Italians to borrow money first. Its success is also signaled by the articles published in various international finance newspapers against our national debt. Because BTP Valore goes to Italians, it doesn't enrich the pockets of speculators, and this bothers some.

Final little curiosity: have you noticed that there is a decent spread between European bonds and German Holy Bunds? And that France has a higher spread than small Belgium. Isn't it that things aren't going exactly as many in big finance would like?

---

---

The article BTP Valore: a success that makes it better than the “European Funds” comes from Scenari Economici .

---

This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/btp-valore-un-successo-che-lo-rende-migliore-dei-fondi-europei/ on Sun, 08 Oct 2023 11:33:09 +0000.