Is Now Really the Time to Buy BTPs with Hands?

In these days you will surely have noticed so much frenzy about BTP And there is also a lot of talk about the BTP Italia about to be issued.

On the one hand we have people literally panicking because they are seeing a volatility that they never expected and on the other hand we have requests, even from people who follow us, about the convenience to buy now i Italian government bonds.

This reasoning of mine is aimed above all at those who are thinking of buying, at those who are afraid for their own BTp in negative territory or for their own bond funds.

Why could buying BTp be an opportunity?

According to some, because the drop in prices is making many previous issues on the secondary market cheaper.

We speak down to earth, so we understand each other even if we know little or nothing about finance.

Let’s take for example the Btp Green 1.5% maturing in April 2045.

This BTP has already been issued so you don’t buy it like when there are emissions of new instruments (e.g.: BTP Italia, complete with unified network advertising), but can be bought on the secondary market on a specific segment of Borsa Italiana called MOT.

It means you don’t buy it directly from the issuer, but from someone else who is selling it.

The price, as I write, is 58.46 (the issue value was 100) and the coupon that is paid annually is 1.5% of the issue value.

Until recently it was of interest to relatively few people, but now that coupon (which is fixed, does not change based on the price fluctuation) would be interesting for some.

Because? Because it is calculated on 100, i.e. on the issue value, only that you pay 58.46. For you, in a nutshell, in the event of a purchase at the assumed price, it means that the coupon is “transformed” and becomes approximately 2.5% gross.

In addition, upon expiry, in 2045, the Italian State (if it still exists) will reimburse you the issue value, i.e. 100: you bought at 58.17 so if you’re good, you’ll take home 41.54 more in yield.

Considering that there are 23 years left until the expiry, really doing the super simplified calculations, your premium, if you bring it to expiry, is an additional 1.81 per year, which however is paid to you at the end, i.e. in 23 years.

In theory, as i say fanboys of the BTPs, when things will adjust the price should go up and therefore you could get rid of the BTPs even earlier, taking home a capital gain that may not be total but potentially interesting.

I more or less explained to you, without getting too technical, why you have probably read in the newspapers and on the forums about this “opportunity” on BTPs and I am quite willing to bet that many of those who now strut about as bond market experts are more or less those who until the day before yesterday were talking about cryptocurrencies and shares growth… but these are mine opinions which I will elaborate on shortly.

Let’s pretend that everything goes as described and that the situation I hypothesized occurs: let’s try to take a look at the visible and invisible risks of the thing.

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What do I think of this investment? – FAQs

As I always say, I won’t be the one to make you change your mind…but if you wait for me to give you the last “ok” to buy, please don’t put any responsibilities on me that I don’t have.

Rather, I’ll quickly tell you some thoughts in no particular order that should make you think and which are taken from the questions we are usually asked.

We can say that this part of my reasoning is a sort of FAQ on the subject, so I’ll have my say on questions, objections and thoughts that I’ve read around.

What if everything is fine?

Assuming the best scenario, i.e. immediate coupon plus the Italian State which will repay you in full in 23 years, your hypothetical return would be close to around 4% net. Is it a lot or a little? Can it suit you? It depends on many factors, there are no “convenient” investments in nature just as there is no ideal wife or husband, the dream home that is valid for everyone, the best wine ever or the fabulous holiday that everyone should have.

There are personal tastes, expectations related to the condition of the person asking the question, the context in which we make a decision. In short, life is a little more complex than TikTok videos or clickbait newspaper headlines.

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But above all, is it a lot or a little compared to what?

Here we are…compared to what? What’s your benchmark? Sure, compared to doing nothing, you’ll probably think, it’s definitely better.

Too bad this year inflation, which should be the evil we should protect ourselves from, is around 8%. This means that even this “super” yield would not actually allow us full inflation protection.

Plus, how many “shells” do we have to shoot? Because even more interesting situations could open up (some are already open) on the markets, only that maybe you don’t even know it or you couldn’t judge them as such because the light bulb only turns on when you hear about BTPs or someone mentions the brick.

But the shares are losing

You could protest and sadly, I have to contradict you and tell you that yes, if you look year-to-date, equities are losing, but over the long term, the equity market has always outperformed the bond market.

In addition to the statistics, which I am not reporting just so as not to weigh down the discussion, there are precisely the fundamentals that no one ever dwells on: do you think more money is made by investing in companies that create wealth or by lending it to a state (among other things dangerously indebted ) that that money often squanders them in a questionable way?

I’ll make it even more extreme: in your opinion, it’s easier for Mbappé to drag PSG towards countless victories with his class and his speed, although every now and then he misses a few games, or he thinks I can enter the pitch in his place, with the belly and sciatica?

Because this is what we’re talking about, not the numbers you see shared on social media by people who can’t even read them.

Country risk, this stranger!

Italians fear every day for the future of Italy, during the electoral campaign we received many requests for “opinions” about the prospects of our country.

Given the high public debt, in my view, we cannot hope that everything will be 100% fine because “They always paid in the end”.

When “they always paid” the public debt was not 150% of GDP, the country was destroyed starting in the 1980s, precisely that period that if you are a few decades older than me you probably regret.

Today, forty years later, we are here with reduced economic growth, a significantly older population and a huge burden of public debt created in a crony fashion by the worst political class in the West. I don’t want to be the one to dismantle your illusions but if you follow Affari Miei and you trust what we say at least, I’ll at least have to put it in writing for you.

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What about diversification?

Probably those who are thinking of buying BTPs now could be the same person who has funds or bond ETFs at a loss and thinks of “fixing” this way.

In light of country risk, the purchase of BTPs should at least be included in a diversified strategy: many, unfortunately, concentrate a large part of their assets on a few government bonds.

Consider that if you already have other investments in mutual funds, pension funds, policies or ETFs, you indirectly already own a significant share of BTPs, in fact the single purchase overexposes you to a higher risk that you may often not be able to handle.

“But I buy to then resell”

Over the years I have discovered that there are also aspiring BTP traders. Could that make sense? Maybe yes, it depends on how much you expect to take home and in how long.

It could take years for the price to rise again and, if you want to do it for small amounts, between taxes and transaction costs of your banking platform it might not be worth it.

“But how do you make it difficult, I don’t even know what the hell a benchmark is, I don’t give a damn about diversification and other complicated things that I don’t understand”

The BTp, like real estate, is the erotic dream of the average Italian investor who, in 74% of cases, is financially illiterate.

He invests in things he doesn’t understand, often trusting people he can’t judge, and then cries because things go wrong.

Every financial decision must always be compared with something, if we are not able to understand what our yardstick is we are operating blindly.

The problem is not the 2.5% coupon but that we are, for the umpteenth time, implementing a decision of which we are not 100% aware.

I warn you about the risks, then the last word is yours…is the money yours, not mine? 😉

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But is it never worth it?

I wanted to talk to you about all the risks that I see and I have debunked some general false myths on this subject, personally I do not hold BTPs directly and I do not think I will buy any soon.

If you have really decided that you want to buy and the percentage impact on your assets can be low, let’s say that there are ways you can lose money more easily (eg: options, strange shares, cryptocurrencies, alternative investments and the like).

If you don’t have BTp in any way and you want to do a good deed for your country by earning the “fair” money, even here, I won’t be the one to change your mind just as it’s not my job to persuade people to do charity and/or tell them what causes they should support.

I am especially interested in speaking to those readers who do not consider themselves experts and who, by acting improperly, could get hurt.

Maybe those who want to buy BTPs now are no different from those who bought them 6 months ago and are now super scared because they see them in red and are not understanding anything: they just happened upon this instrument at the “right time” but, essentially, the The approach is identical and the risk of getting hurt due to inexperience is equally high.

Ask yourself, for example, how would you handle the situation if the spread skyrocketed, how would you feel if your shares were to drop 20%, and the like.

If you feel anxiety and concern, your problem probably isn’t “betting” on the best horse hoping it goes well but getting serious help in managing your money.

How to deepen the discourse on the bond market?

In a single reasoning it was difficult to answer all the questions and give an opinion on all the clichés, I made an effort to do it and I apologize if I missed some pieces.

However, if you wish to deepen the discussion in the best possible way, I have the pleasure of sharing other resources in which we have analyzed the topic:

What is… as I like to say.

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Is Now Really the Time to Buy BTPs with Hands?