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Presentazione Btp

Presentazione Btp






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    Presentazione Btp Presentazione Btp Presentation Transcript

    • IMI Desk NotesNEW Btp Inflation linked: good for investors and good for the TreasuryMilan, 16 th March 2012 Cristiana Corno Desk rates & Inflation - Structuring
    • DisclaimerThis marketing communication has been prepared and is distributed by Banca IMI, a bank belonging to the Intesa Sanpaolo BankingGroup which is authorized to carry out investment services in Italy and in the United Kingdom and is regulated by the Bank of Italy andConsob.The information contained in this document: constitutes a marketing communication and, as such, it has not been prepared in accordance with the legal requirements designed topromote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination ofinvestment research; may differ from the recommendations prepared by financial analysts of the Servizio Studi e Ricerche of Intesa Sanpaolo and distributedby Banca IMI.The information contained herein does not constitute investment research or an implicit or explicit recommendation or advice in relation toany investment strategy on the financial instruments or on the issuers referred to herein, or a solicitation or invitation, or investmentadvice, and does not purport to offer legal, tax or any other advice. Neither the Intesa Sanpaolo Banking Group, nor any officer,representative or employee thereof accepts any liability (for neglicence or otherwise) for any direct or consequential losses arising fromany use of information including, without limitation, the reliance on any such information contained in this communication.The information and views contained in this communication are based on sources believed to be reliable and in good faith. Accordingly,Banca IMI does not implicitly or explicitly guarantee their accuracy, completeness or correctness.The views, forecasts and estimates contained in this communication reflect the personal view of the author as of the date of itspublication. The views may differ from those of others within the Intesa Sanpaolo Banking Goup 1
    • DisclaimerThere is no guarantee that the future results or any other future events will be consistent with the views, forecasts and estimatescontained in this communication. Furthermore, any information included herein is subject to change by the author after the date of itspublication without any notice by Banca IMI to the person to whom this communication has been distributed.This communication is being directed by Banca IMI at persons who have professional experience in Italy and in the United Kingdom. Thismaterial is not for distribution or transmission into USA.Conflicts of interest.Intesa Sanpaolo Group parties who will collect the Securities purchase orders are in a conflict of interest situation for the followingreasons: the Issuer will pay the collectors of orders, through the Dealers, a Commission of 0.3% of the Nominal Overall Amount of the Securitiespurchase orders sent to the Electronic Bond Exchange (MOT) during the Distribution Period. This Commission is recognised by theIssuer to the collectors of orders as remuneration for the order collection service; Banca IMI S.p.A., a company belonging to the Intesa Sanpaolo Group, is acting within the operation as Dealer and will guarantee, alongwith the other Dealer, the subscription of the Securities covered by the operation up to 1,500,000,000 Euro; Banca IMI S.p.A, as a result of the activity carried out as Dealer and guarantor of the Securities in the operation, will receive from theissuer a commission of 0.05% of the Nominal Overall Amount of the Securities purchase contracts correctly concluded on the ElectronicBond Exchange (MOT) during the Distribution Period, to be divided equally with the other Dealer.Banca IMI S.p.A. carries out ordinary trading activities and may, in this context, continue to handle the Securities on the Electronic BondExchange (MOT), organised and managed by Borsa Italiana S.p.A., operating subsequently at the end of the Distribution Period asmarket maker and providing purchase and/or sale prices for the Securities during the opening hours of the MOT, in accordance with the 2
    • Disclaimeroperating rules of the MOT itself. Banca IMI S.p.A. does not warrant that this market maker activity for the Securities will actually becarried out, as it has not taken on any obligation with regard to the Issuer and/or the market management company.This communication is for exclusive use by the person to whom has been distributed by Banca IMI and may not be reproduced orredistributed, directly or indirectly, to any other person or published, fully or partially, for any reason whatsoever, without the prior writtenconsent of Banca IMI. The copyright and any other intellectual rights on data, information, opinions and estimates referred to herein belongto the Intesa Sanpaolo Banking Group, unless otherwise stated. Such data, information, opinions and estimates may not be fully orpartially distributed or reproduced in any form, and by any means, without the prior written consent of Banca IMI.Any recipient of this communication is required to comply with the above requirements. 3
    • New Btp inflation linked versus Outstanding Btp-iWe will go in details in the features of the new Btp,”BTP Italia” with focus to: Different indexation mechanisms: semi annual versus inflation accrued from settlement date of the security Semi annual revaluation of capital versus maturity revaluation of capital Floor on capital and coupon versus floor on capital at maturity Italian inflation versus European one Possible approaches to valuation 4
    • New Btp inflation linked versus Outstanding Btp-i Btp Italia Btp-i Indexation coefficient is linked to Indexation coefficient is linked to semi annual inflation, for both inflation accrued from settlement coupon and capital date of the security Semi annual revaluation of capital, Capital is revalued at maturity paid at coupon date Floor on capital and coupon, during Floor on capital only at maturity the life of the bond Italian inflation (itcpiunr Index) European Inflation (cptfemu Index) 5
    • Indexation mechanismBtp Italia pays a semi annual coupon revalued on the semester’ inflation. At time t the flow will be*: C I F = *100 * ( t ) t 2 I t −6where It is the level of the inflation index at time t and I is the level of the inflation index at preceding coupon t −6date.On the contrary a Btp-i pays a flow equal to: C I F = *100 * ( t ) t 2 I 0where I is the level of inflation at time t and I is the level of inflation at the initial accrual date of the security. t 0This actually means that in the second case inflation is re-invested at subsequent period inflation rate, while in the firstcase it is re-invested at nominal rates. The second indexation mechanism is superior to the first for the investor, ifnominal rates are higher than inflation rate. *We are not considering the lag in indexation, being the same for Btp-i and Btp Italia. Detailed info avaiable on Tesoro website, link at end of presentation 6
    • Indexation mechanism If we look at 6m Italian inflation rate versus 6m Bot yield, we find that nominal rates have generally been higher than inflation rate by approximately 0.30% (6m real rate, histogram in chart below, data from Jan 2000, calculated as difference between 6m yield and realized inflation in the subsequent 6 months) 6 m Real Rate25 On the contrary, at present, we are20 in a situation of negative real rates in the short end, due to liquidity15 abundance and LTRO carry speculation and high inflation.10 On this argument at present situation favors Btp-i over Btp Italia, 5 where flows are re-invested at 0 inflation rate. -2.00% -1.75% -1.50% -1.25% -1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% Bloomberg data, IMI calculations 3.00% 7
    • Indexation mechanismAssuming for simplicity, an constant annul 2% inflation rate and a 2% semi annual coupon, we get thefollowing indexation coefficients for a hypothetical 4y Btp Italia and a Btp-i with the same features in terms ofmaturity and couponinflation rate 2.00% Btp Italia Btp-i 104.00 coupon index coefficient revalued coupon index coefficient revalued coupon 106.08 1.02 1 1.02 1.02 1.02 1.02 108.20 1.02 1 1.02 1.02 1.04 1.04 110.37 1.02 1 1.02 1.02 1.06 1.06 112.57 1.02 1 1.02 1.02 1.08 1.08 114.82 1.02 1 1.02 1.02 1.10 1.10 117.12 1.02 1 1.02 1.02 1.13 1.13 119.46 1.02 1 1.02 1.02 1.15 1.15 121.85 1.02 1 1.02 1.02 1.17 1.17IMI calculations: simulation of indexation coefficients for Btp Italia and Btp-i Compounded inflationThis table aims to show the difference in inflation coumpounding in Btp Italia (current pay bonds) and standard Btp-ilinkers (capital indexed bonds). For more info on this argument see linkhttp://www.nuclearphynance.com/User%20Files/3877/Inflation-linked%20Bonds%20Explained.pdf 8
    • Capital revaluationThe next big difference between Btp Italia and Btp-i is that, in first case, capital revaluation is done semi annually andpaid together with the coupon with the same indexation method described in previous pages.In table below we have summarized the cash flows of Btp Italia and of a Btp-i with the same features (maturity, coupon).The big difference is that the inflation uplift is diluted through time (chart in next page). 104 Btp Italia Btp-i 104 index coefficient coupon revalued coupon revalued capital total flow s revalued coupon revalued capital total flow s104.7 1.0067 1.00 1.0067 0.67 1.68 1.0067 1.01106.1 1.0134 1.00 1.0134 1.34 2.35 1.0202 1.02106.8 1.0066 1.00 1.0066 0.66 1.67 1.0269 1.03108.2 1.0131 1.00 1.0131 1.31 2.32 1.0404 1.04108.9 1.0065 1.00 1.0065 0.65 1.65 1.0471 1.05110.4 1.0138 1.00 1.0138 1.38 2.39 1.0615 1.06111.1 1.0063 1.00 1.0063 0.63 1.64 1.0683 1.07112.6 1.0135 1.00 1.0135 1.35 2.36 1.0827 8.27 9.35The first column simulates a pattern for the inflation index, in the second column we calculate the indexation coefficients for Btp Italia. In thefollowing columns, assuming a 2% real annual coupon, we determine revaluted capital and coupons for both Btp Italia and Btp-i 9
    • Capital revaluation Positive for Investors: credit risk is less10.00 concentrated at maturity, therefore the break 9.00 Btp Italia Btp-i even inflation between nominal and real 8.00 bonds will translate more correctly the Italian 7.00 inflation rate. Contrarily at what happened 6.00 with Btp-i during the crisis. 5.00 Negative for investors: tax to be paid earlier 4.00 3.00 2.00 1.00 0.00 1 2 3 4 5 6 7 8 Due to lack of inflation uplift, credit Flows related to coupon and capital revaluation for Btp Italia and Btp-i risk is more comparable to nominal Btps !!! 10
    • Floor Both Btp Italia coupons and capital are floored each semester, while Btp-i is only floored on capital at maturity. Floor mechanism If inflation index at coupon date x is lower than inflation at previous coupon date, the indexation coefficient is set to 1. After that, if inflation level increases the indexation coefficient remains unchanged, unless the inflation level is higher than the maximum inflation level scored in the preceding semesters. Below an example of how it works. Basically once the indexation rate goes to 1 due to semester deflation, the indexation index base becomes dynamic. .start date 104 ic inflation max modified ic rule20/09/2012 103.6 0.99615 104 1.00000 deflation: index to 120/03/2013 106 1.02317 104 1.01923 inflation and level greater than any level preiously registered: index goes to 106/10420/09/2013 104.7 0.98774 106 1.00000 deflation: index to 120/03/2014 105.8 1.01051 106 1.00000 inflation but level is not greater than the higher level previously registered: index to 120/09/2014 107 1.01134 106 1.00943 inflation and level greater than any level preiously registered: index goes to 107/10620/03/2015 103 0.96262 107 1.00000 deflation: index to 120/09/2015 102 0.99029 107 1.00000 deflation: index to 120/03/2016 99 0.97059 107 1.00000 deflation: index to 1Example of floor mechanism, for further info see “ESEMPI DI CALCOLO” in www.debitopubblico.it , links at the end of presentations.Dates are hypotetical. 11
    • FloorThe floor gives protection to investor in case of temporary deflation. Valuation requires implementation of Monte Carlosimulation and it is more a theoretical valuation, than tradable price.On our valuation it could be worth around 0.20% in terms of real coupon, versus approx 0.05% value of a standard flooron Btp-i 2016. 6.00% itcpi Index cptfemu Curncy Historically we had brief periods 5.00% of negative semester inflation 4.00% as outlined from chart (6m 3.00% rolling inflation from 2000 onwards) 2.00% 1.00% 0.00% Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 -1.00% Jul-11 -2.00% -3.00% 6m rolling Italian and European inflation, Bloomberg data, IMI calculations -4.00% 12
    • Italian inflationBtp italia will be linked to Italian inflation via Foi. We will not go in depth in describing the index, rather we will focus onrelation with quoted and realized inflation. Italian inflation is quoted on as zero coupon swap. Quotes are available atBloomberg page SWIL, still not very liquid prices. In following analysis we focus on 1y point.First thing to notice is that quoted inflation is a bad forecaster of subsequent period realized inflation (r2=0).Same old true for 5y point and for quoted EU inflation 4.50% realized inflation 4.00% quoted inflation 3.50% What is interesting is that the market 3.00% seems to systematically underestimate 2.50% Italian inflation with an average error of 2.00% 0.20% on 1y point from 2004 onwards. 1.50% 1.00% 0.50% 0.00% May-06 May-07 May-08 May-09 May-10 May-11 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 -0.50% Quoted 1y inflation and inflation realized in the subsequent period. Bloomberg data, IMI calculations 13
    • Italian inflationThe same is evident by looking at the spread between realized and quoted spread between Italian and Europeaninflation. Quoted spread is more volatile and less sticky than realized inflation spread. 1.00% Eu-Italian inflation spread realized 0.80% Eu-Italian inflation spread quoted At present inflation swap market is 0.60% implying a lower Italian inflation 0.40% than European. 0.20% Historically, Italian inflation has come down more slowly than 0.00% implied by the inflation swap May-06 May-07 May-08 May-09 May-10 May-11 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 -0.20% market. -0.40% -0.60% -0.80% Quoted and realized spread between European and Italian inflation 1y point. Bloomberg data, IMI calculations 14
    • Possible approaches to valuationDifficult to estimate a fair value for the real yield, due to scarce liquidity of Italian swap Inflation and non-linearity inthe floor pay off. We have followed 2 approaches:a.) Using the inflation swap market (mid) to forward the indexation coefficient and the Btp zero curve to discount theflows we get that a real coupon of 1.70% to have a initial par price.To this we have to add a liquidity premium for inflation linked securities. In order to value the liquidity premium weapply valuation at point 1 for a btp-linkers of the same maturity and we estimate a liquidity premium of around 0.50%.This gives us a real coupon of 2%, once we subtract an estimation of the floor premium ITCPI FORWARD DERIVED FROM QUOTED INFLATION 130 MID 125 OFFER 120 115 110 105 100 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Inflation index data as derived from Itlaian inflation swap, Bloomberg data 15
    • Possible approaches to valuationb) If we use the breakeven level of Btp-i 2016, around 1.23% (European inflation) less 0.15% (quoted differencebetween Italian and European inflation on same maturity) to forecast Italian inflation (1.08%) and subtract theinflation rate from a comparable nominal yield (Btp Apr 16, yielding 3.30%), we get a real coupon rate of 2.22%.Again subtracting the floor value we get to 2.02%.In summary we could see a real coupon of around 2% with same upside given the different tax profile. !!!!!!! 16
    • Further informationhttp://www.dt.tesoro.it/en/debito_pubblico/btp_italia/index.htmlhttp://www.tesoro.it/primo-piano/btp.asp 17