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BTP - Long Term Treasury Bonds

25 Sep2012

Finance - Financial instruments


btp long term treasury bondsTo finance the public debt, the Italian state occurs, in addition to the BOT, to the issuance of other types of bonds in the medium and long term, among which an absolutely importance is represented by Long Term Treasury Bonds or BTP.


Main characteristics

The BTP are medium or long-term bonds, that recognize a fixed coupon interest every six months, making them an excellent tool for anyone who wants to rely on certain and continuous revenues.

Another aspect that makes them popular with both institutional and private investors, is that BTP are readily convertible into cash: it can be exchange traded on regulated markets (eg MOT, MTS, ETLX) to a minimum size of Euro 1000.

However, under a liquidity or speculative perspective, long life means that their market price is subject to fluctuations, the more sensitive the more the residual term: in fact, the stock exchange of the BTP is affected by changes in interest interest, if interest rates rise the price of BTP falls, and vice versa.




The deadlines set for BTP can be 3, 5, 10, 15, 30 years (the ten-year BTP is used as a reference for the spread over foreigner government bonds), but recently have been saw some outstanding issues with different durations .


Mode of placement and reimbursement

Unlike BOTs, BTPs are placed by "marginal auction" mode, whereby the entire placement occurs at a single price for all subscribers, equal to the minimum offered among all those who are successful bidders of the auction.

The minimum subscribed is1000 euro,and normally the issue price is par, or slightly off (for example 99.5 the issue price and 100 redemption price).

The yield accordingly consists in the amount of the coupons in addition to any issue discount.

Reimbursement is made with a single payment equal to the fixed deadline.

The placement auctions occur with the following frequency:

  • BTP 3 years: twice a month,
  • BTP 5 and 10 years: once per month
  • BTP 15 and 30 years are offered on a quarterly basis, usually alternating.


BTP€i – European inflation-linked BTPs.

The BTP €i is a particular type of BTP that gives the investor protection against the increase in prices: both the repayment of capital at maturity and the coupon paid semi-annually are in fact re-evaluated on the basis of inflation in the Euro area.

In other words, the BTP€i guarantees at maturity, in addition to the nominal value of the subscribed capital, the recovery of the loss of purchasing power that has occurred over the life of the security.

Coupons payable to the subscriber are in variable amounts, but will ensure a steady income in terms of purchasing power, in fact the amount of each coupon is calculated as follows:

capital x interest rate fixed at issuance x rate of inflation for the last 6 months

The quotation on the market is made in "real" terms, that is it does not take into account the indexing component, whereas the selling price, ie the price at which they are bought / sold the BTP€i, is obtained by multiplying the quoted price for the "indexation coefficient" on the date of the transaction.



The taxation established by the Finance Act of December 2011, has left the rate unchanged on the performance of all bonds, both Italian and foreign, to 12.5%.

This tax is applied in advance by the intermediary (as a taxation substitute ) at the time of subscription by the private client.


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