Italy has one of the highest public debts in the world, equal to 2.84 trillion euros and representing more than 140 percent of gross domestic product. A similar figure may seem abstract and difficult to imagine, but behind this amount of debt there are many creditors, who are concrete subjects: central banks, commercial banks, Italian and foreign investment funds and even ordinary people who have decided to invest their savings. Each of these creditors holds a share of the debt public by means of what are called state bonds, that is to say the financial instruments with which the State borrows money to finance its public expenditure and on which it pays interest; at the same time, those who lend them make an investment that allows them to obtain profits.
We often talk about them because of their centrality in the functioning of an indebted country like Italy, but also because the government of Giorgia Meloni introduced measures to encourage families to invest their savings in Italian debt, therefore buying government bonds. And this, on the one hand out of consistency with the nationalist tendency of this government, on the other hand because it is generally accepted that if the public debt of a country is held by private savers, and not by large banks or investment funds, it is a guarantee of greater stability.
To give a recent example, a rule was included in the budget bill according to which Italian government bonds up to a total value of 50 thousand euros should no longer be taken into account in the ISEE calculation ( equivalent indicator of economic situation), a parameter that serves to regulate access to certain services and to calculate incentives that are aimed only at individuals and families whose value is below a certain threshold. It is used, for example, to access childcare services, such as a crèche or allowance for dependent children , or to request benefits. According to some experts, deciding to exclude government bonds from the ISEE calculation generates inequity issues and will tend to favor access to public services for middle-income families, to the detriment of the poorest.
In summaryGovernment bonds are financial instruments with which states borrow money and fund public debt. Unlike any security, such as a bond of a publicly traded company, they are issued by public bodies: they are generally considered less risky than the securities of private companies, because it is assumed that governments are less likely to make bankruptcy and therefore those who purchased a government bond are unlikely to lose the entire amount invested. Everyone can buy them: funds, banks, large and small savers.
Like any financial instrument, government bonds also guarantee a profit to those who buy them, expressed in terms of interest rates. They therefore respond to a normal logic of investment in the stock market: to simplify, obtain a profit by lending money by purchasing bonds and government bonds (or by entering into the capital of a company by purchasing shares ). Italy then sells the bonds steadily and for a certain amount, promising to pay interest to the buyer and repay them on a certain date. The redemption date corresponds to the maturity of the securities, which are also recognized as benefiting from a favorable tax regime: when paying interest, the state levies a tax of 12.5 percent, while for other income financial, the rate is 26 percent, or a little more than double.
There is not just one titleThe Ministry of the Economy created various types of government bonds to make them attractive on the market and adapted to the most diverse needs. They differ in terms of maturities, interest payment terms, whether or not they are indexed to inflation, among other things.
For example, for those who wish to invest their money over a very limited period, there are BOTs, Treasury bonds, which have a maximum maturity of one year: the return is given by the difference between the purchase price and the value that the State returns at the end of the period, i.e. the nominal value. If you buy a BOT for 97 euros and the State returns 100 to you at the end of the period, the profit will be 3 euros.
Then there are government bonds which guarantee a periodic return, called a coupon, which is paid regularly before maturity. These are BTPs, that is to say multi-year Treasury bonds, which have a duration of 3 to 50 years. They guarantee fixed semi-annual payments based on the interest rate at which they are initially issued. By simplifying and bringing the calculations much closer to facilitate understanding, a BTP with a maturity of 10 years, issued with an annual interest rate of 4 percent and a value of 100 euros, will guarantee a half-yearly coupon of 2 euros for ten years. , in addition to the reimbursement of 100 euros upon expiration.
BOTs and BTPs are the most traditional government bonds. These are two basic models, from which the Ministry of Economy has created some variations over time to make investments in government bonds attractive also depending on the historical period. But the basic mechanism is always the same for everyone: securities are purchased by paying money to the State, which will then be returned at maturity with interest.
For example, there are government bonds linked to inflation, the BTP€i, similar to the BTP whose coupons and final repayment are however indexed to European inflation, or the BTP Italia, which is rather indexed to Italian inflation: This means that if inflation in Italy is 4 percent per year, the coupon of the indexed bond will also increase by 4 percent.
At the start of the coronavirus pandemic, the Ministry of the Economy created the BTP Futura , which aimed to raise funds to support the economy during the economic crisis triggered by the pandemic. Valore BTPs have also recently been created, accessible only to small savers. They provide a periodic coupon and premium if the security is held to maturity, a circumstance that concerns private savers more, while professional investors tend not to.
How and where to buy themGovernment bonds can be purchased in two ways. The first is located on the so-called primary market, only at the time of issue of the securities: the Ministry of the Economy offers them to buyers via auction managed by the Bank of Italy and on which you must register indicating the value of the securities you intend to purchase and at what price. Only authorized investors, such as investment funds and banks, can participate in these auctions: if a person wishes to buy government bonds on the primary market, they must mandate their bank, which will make an offer on their behalf , or she can do it through theirs platform home banking services if enabled for trading. Purchases must be for a minimum amount of 1,000 euros.
The second way to buy government bonds is on the secondary market, that is, on the stock exchange via the MOT, the telematic market for government bonds and securities, managed by Borsa Italiana. This is an online portal accessible at any time through a financial intermediary, the difference is that in the secondary market you can buy securities already issued and in circulation, not only at a specific time but every day of opening of the stock market. Also in this case the minimum bid amount is 1,000 euros.
It is important to know that if you buy government bonds, you are not obliged to hold them until maturity, and this applies to any tradable security on the stock exchange: you can resell it at any time at market price and regain possession of the money invested. liquidity (which may however be higher or lower than the initial sum, depending on market developments).
The risks Government bonds work like any investment instrument, but are on average considered safer than other securities unless certain countries are at risk of bankruptcy. As in the case of Argentina, which went bankrupt in 2001 and refused to pay more than $100 billion in government bonds, the so-called tango link.
In the case of advanced countries, the risks associated with these investments are mainly linked to price fluctuations over time, which are however rather limited in normal times compared to other securities. The risk that the capital will not be repaid on maturity is considered low.
As always, safest investments also earn less, while investments that earn more through higher interest carry a greater risk of not seeing the money invested return. In other words, if you are a State and you want to convince someone to lend you their money, you will have to offer a return (i.e. the profit obtained with interest) deemed practical by investors: if according to those who invest in it There is a risk that you will not return this money, so to convince them you will have to offer higher interest.
Although its bankruptcy is considered an unlikely scenario, Italy is considered one of the most threatened European countries due to the enormity of its public debt. Among European countries, it is therefore one of those which offers the highest interest on its debt. The famous “spread” defines the difference in yield between the government bonds of Germany, which is the country considered to be the strongest and most reliable and which serves as a point of comparison, and the government bonds of another country, in this case Italy. . The higher the spread, the more risky this country will be perceived compared to Germany, which is generally assigned a risk close to zero.
Who has these titles?Therefore, being somewhat safer than other investment tools, government bonds are considered suitable for ordinary people and families who do not invest professionally, but perhaps only to grow their saving. Despite this, for years the share of private savers in total public debt has been lower than it was around twenty years ago, when it was around 16 percent: it is currently only 9 percent, but it has been increasing for three years. The largest share belongs to central banks: the European Central Bank and the Bank of Italy hold around 35 percent.