The BTP yields more than 3.5%, how to earn with the jump in interest (but beware of the risks)


The BTP yields more than 3.5%, how to earn with the jump in interest (but beware of the risks)
Written by aquitodovale

Relatively quickly, the yield of the ten-year BTP has reached interesting values ​​for those who have assets and would like, at least in part, to invest them. The BTP rate on Monday 13 June in fact exceeded the 4% threshold and closed at 4.1%, at levels not seen since December 2013.
The first thought goes to the risk that one assumes, by allocating part of one’s capital to financial instruments, such as shares or, in this case, bonds, in the form of Italian Treasury securities. Not so long ago, it was assumed that a 3.75-4.00% yield level of the ten-year BTP could represent a first step to invest a portion of cash. The path, up to that moment, had been gradual. In the sense that the prices of medium and long-term government bonds had decreased, thanks to the demand by the markets for higher yields, but to a limited extent.


In recent trading sessions, an unexpected acceleration has meant that the rise in yields has become much more concrete. On 28 May, the ten-year issue yielded 2.89%. In the five subsequent sessions, the 3% return threshold was largely exceeded, to settle just below 4%. The press conference by the president of the ECB represented a rather complex situation, inflation rose to 8.1% in May. The main weapon at the disposal of the ECB, like the other central banks, is the credit crunch, through the increase of the reference rate. Starting from 21 July, with an important follow-up in the following months, from September onwards, the rise will have few stops. But the Bank of Frankfurt will have to monitor the large number of government issuers, some with high overall debt. The second reason for the increase in yields is probably due to the approach of the 15th of this month, when the Fed raises the reference rate for the third time this year.

The Fed’s choices

The positive trend in consumption and the high number of workers finding employment mean that in order to reduce inflationary dynamics, the US central bank may be induced to apply a higher-than-expected monetary tightening. With this in mind, the financial markets anticipate the possible decision by demanding a gradually increasing level of return at all maturities of government bonds. In particular of the most popular duration, the ten-year.


If, in the wake of these mechanisms, the ten-year BTP yield were between 4.25 and 4.50%, it could be time to allocate part of the assets to an issue with a ten-year maturity. Next to which, to keep the overall risk of assets at medium levels, set two-year and three-year maturitieswhose yield is close to 2%. Invest, for now, a maximum of 7.5% of the portion allocated to bonds in these three maturitiescan be the start of a two-sided portfolio policy.

Comparison with actions

On the one hand, the first stone of an accumulation at still falling prices, if market yields rise further. On the other hand, a potential capital gain, if, on the other hand, future yields should decrease, in the event that, at the beginning of July, the communication of the change in US gross product in the second quarter of this year still provides negative data. The eloquent graph: the ten-year EU years offer a minimum return, before tax, of 1.44% in Berlin, to rise to 3.64% in Rome. We can see the greater surge in yield that characterizes the BTP, starting from May 30th. A month earlier it was 2.85%. An increase of over 27%. Which shows how much longer bonds may, in certain phases, expose to risks – and to as many investment opportunities – comparable to those of equities.

#BTP #yields #earn #jump #interest #beware #risks


About the author


Leave a Comment