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Inflation, 10-Year Indexed BTP Release Coming Soon


20 / January / 22 Bunsi Shakiramal Visitors: 51 Rating:

The Ministry of Economy is heating up engines for the release of 10-year BTP€i. The new 10-year bonds indexed to inflation in the euro area, excluding tobacco products, expire on May 15, 2033.

According to the ministry, the transaction will be carried out in the near future, in relation to market conditions. Thus, the BTP€i auction scheduled for February 23rd may be cancelled. Inflation in the eurozone rose to 5% in December, the highest level since surveys began in 1997.

Btp is indexed to inflation, characteristics

European inflation-indexed BTP is a government bond that provides the investor with protection against price increases: both the capital redeemed at maturity and the semi-annual coupons are actually revalued based on eurozone inflation as measured by Eurostat through the Harmonized Index consumer prices (IAPC) with the exception of tobacco.

Due to the indexation mechanism used, at redemption, the holder recognizes the recovery of the loss of purchasing power realized during the life of the security. In any case, Btp€i guarantees the return of the nominal value of the subscription: even if the price decline occurs during the life of the security, the amount redeemed at the end of the maturity will never be lower than the nominal value (100).

In the event of early redemption, the amount paid will be equal to (i) the total subscribed capital times the indexation factor, and only if this ratio is less than or equal to one, the amount returned will be equal to the face value of the security itself; plus (ii) the interest rate.

Coupons paid to the subscriber have a variable amount, but guarantee a constant return in real terms, i.e. in terms of purchasing power.
The amount of each coupon is essentially calculated by multiplying the fixed interest rate set at issue by the subscribed capital, revalued based on the inflation that occurred between the date of receipt and the date of payment of the coupon.

 

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