A new six-year bond issuance reserved for families is about to begin: in this case, it is not a BTP, but the guarantees offered and the favorable taxation are the same. It is the new bond from Cassa Depositi e Prestiti, to be issued between November 7 and 15. The funds raised, up to a maximum of 2 billion euros, will finance the bank controlled by the Ministry of Economy, active in various projects prompting the development of the Italian entrepreneurial ecosystem. Initially, it was planned to issue up to 1.5 billion euros with an extended window until November 27, but the high demand from investors prompted CDP to close it earlier.
CDP Bond, What Determines the Yield
The yield of the bond will be fixed in the first three years of the title’s life, while in the next three, the yield will be variable.
- In the first period, CDP offers investors 5% gross annually, a yield about one percentage point higher than the actual yield paid by the comparable six-year BTP.
- In the second three-year period, the yield will be equal to the Euribor 3-month rate, plus 0.9%. Considering that Euribor is a benchmark rate linked to the ECB’s reference rates, the most lucrative scenario for those subscribing to this bond occurs if the central bank maintains a higher level of interest rates. A scenario that could occur if inflation struggles to decrease or rises due to new crises. However, according to the current forecasts by the ECB, inflation is expected to return to 2.1% already in 2025. If interest rates were to stabilize around the 2% inflation rate, one could imagine a gross yield of around 3% in the second three-year period of the CDP bond.
Comparison: BTP or CDP bond, Which Yields the Highest
The six-year BTP, at current market yields, offers an effective yield at a 4% maturity. For the CDP bond, the only certain data concerns the first three years, which would certainly offer more substantial coupons to investors. But for the second part, everything will depend on the future trends in inflation and monetary policy. No one can effectively predict what the scenario will be from 2026 to 2029. What can be defined with certainty, however, is the yield that the CDP bond should have in the second three-year period to equal that of the six-year BTP – namely, a yield of 3%. Therefore, in the second three-year period, the Euribor rate should average around 2.1%, according to Rocco Probo, an analyst at Consultique Scf.
A Euribor at 2.1% would be compatible with achieving the 2.1% inflation that the ECB expects to reach by the end of 2025. Based on this assumption, thanks to the 0.9% spread offered by the CDP bond over the Euribor rate, a coupon of 3% would be obtained in the second three-year period. As mentioned, this would bring the yield of the CDP bond to the same level as the six-year BTP, which currently offers 4%.
How likely is it that the Euribor will reach or exceed this threshold, allowing the CDP bond to match the BTP? According to the currently implied probabilities in the futures market, which represent the current expectations of specialists, the current expectations for the Euribor’s performance would allow the CDP bond to outperform the six-year BTP by 0.4% per year (about 40 basis points). These are forecasts that, given the temporal distance from the 2026-2029 period, could easily change in one direction or the other.
Currently, however, the CDP bond offers an interesting yield compared to the BTP and is particularly suitable for covering part of the risk associated with the possibility of a new surge in inflation. Several factors could trigger it, starting with significant international tensions.
CDP Bond, what it has in common with BTPs (and how to invest)
In many other aspects, the CDP bond will have more than one common feature with the BTP:
- Issuer risk: it is almost the same because it is always guaranteed by the Italian state. For the same reason, they are especially interesting if the exposure to Italian securities in the portfolio is not already too high – it is always good to diversify even among various issuers geographically.
- Taxation: yields will be subject to the standard tax applied to government securities, equal to 12.5% – advantageous compared to the 26% applied to deposit accounts and corporate bonds.
- Minimum denomination: CDP bonds can be purchased starting from 1,000 euros.
To reserve the CDP bond, it will be possible to contact the network of 24 banks that will be involved in the placement. The bond will be issued at par (the auction price corresponds to the capital repaid at maturity) on the Mot market, with ISIN code IT0005568719.
