Buying a
BTP (Buono del Tesoro Poliennale) below par means buying the security at a price lower than its nominal value (100). Here's what to consider in this situation:
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Meaning of Buying Below Parity
- Price Below 100: If a BTP is trading at a price below 100, it means that you can buy it at a discount to its nominal value. For example, a BTP with a price of 96 is bought at a cost lower than its nominal value.
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Higher Yield
- Increased Yield: Buying below par increases the effective yield of the security. In fact, in addition to the coupons, when the BTP expires, you will receive the nominal value (100). This can lead to an additional gain compared to the coupons themselves.
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Market Risk
- Market Conditions: A BTP may trade below par due to higher interest rates on the market or higher risk perceptions related to the issuer. It is important to evaluate the reasons why the price has fallen.
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Taxation
- Withholding Tax on Coupons: The coupons received will be subject to a 12.5% tax. Furthermore, if you sell the BTP before maturity at a higher price than the purchase price, you will have to consider the taxation on capital gains.
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Investment Strategy
- Evaluation of Opportunities: Buying BTPs below par can be an interesting option for investors seeking returns. However, it is essential to analyze the economic context and your liquidity needs.
Conclusion
Buying BTPs below par can offer opportunities for returns, but also involves risks related to market conditions. It is important to make a careful assessment before making a decision.
