CCT, what is the variable coupon product of the Italian Treasury that investors like?
Gov. bonds and Spread
Posted by MoneyController on 13.08.2024
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Government bonds are typically regarded as securities in the fixed income segment. However, there are some products that do not distribute constant interest but of a variable nature over time. Let us look at the case of a security distributed by the Italian Treasury (Ministry of Economy and Finance).
In 'Il Corriere della Sera', Angelo Drusiani talked about how Italy, with the aim of financing its debt, offers a wide range of financial products. The most widespread are products that guarantee savers a fixed coupon. But these products are also flanked by securities that issue coupons at variable rates: these are, specifically, Treasury Credit Certificates (CCTs). But what is the calculation of the coupon amount based on?
The coupons of these products are six-monthly and indexed by reference to ordinary Italian Treasury bills (BOTs), which are also six-monthly. As the Ministry of the Treasury specifies, starting from the issue of the second coupon, for the remuneration of the security, with reference to BOTs, it is also necessary to calculate (i) a predetermined margin (the 'spread') and (ii) the issue discount. It is therefore, as Drusiani points out, a 'surcharge' on the simple yield of BOTs.
The product has a duration of seven years and the minimum denomination is one thousand euro. Auctions are frequent: one every month. And the reimbursement - one always reads in the Treasury statement - is said to be 'at par', i.e. it corresponds to the entire capital paid at the time of subscription. For subscribers there are placement fees, equal to 0.3% of the subscribed capital.
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