MINISTRY OF ECONOMY AND FINANCE DEPARTMENT OF THE TREASURY PUBLIC DEBT

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1 P.A.Forum - Rome,, 8 May 2003 Dr. Maria Cannata - Director of Public Debt MINISTRY OF ECONOMY AND FINANCE DEPARTMENT OF THE TREASURY PUBLIC DEBT

2 Why should one buy Government bonds?

3 Bonds represent the ideal safe investment for Italian investors because they offer a wide variety of choices: different types of bonds wide range of maturities they are easily tradable: listed by law in regulated markets easily tradable prior to maturity (at market conditions)

4 Bonds do not guarantee very high yields because they are not risky by assuming a greater risk you can earn much more, but you can also lose the nominal amount you invested! the high yields of the past were in large part due to monetary illusion

5 Rate of inflation and nominal rate of 12-month Treasury Bills (BOTs) Inflation 12 month BOT gross yield

6 The different types of bonds are: Bond Maturity Remuneration BOT CTZ BTP CCT 3, 6 and 12 months 24 months 3, 5, 10, 15 and 30 years 7 years Difference between nominal value and issue price Nominal value / issue price difference Fixed semi-annual coupon and difference between nominal value and issue price Floating semi-annual coupon. Difference between nominal value and issue price

7 Advantages short maturity Characteristics of BOTs easy to manage because free of coupons (zero coupon) but remember that commissions are paid (with a maximum all-inclusive limit) the rates are, typically, inferior they require frequent re-investment

8 Characteristics of CTZs Advantages intermediate maturity easy to manage because similar to BOTs no commission but remember that there exists only one available maturity (24 months)

9 Characteristics of medium-long term bonds Which benefits are of interest? 1) a safe annuity over time 2) the possibility to sell back the bond at any time, still obtaining an amount equal to the capital invested BTP CCT

10 Advantages Characteristics of BTPs guaranteed semi-annual coupon income broad choice (maturity from 3 to 30 years) no commissions but remember that it is a medium-long term fixed-rate investment (generally increasing according to maturity): in case of sale prior to maturity there can be a capital loss or a capital gain

11 Advantages Characteristics of CCTs floating rate indexed to 6-month BOTs yield periodically marked to market which makes it easier to sell the bond no commissions but remember that the 6-month yield derived from the cashing-in of coupons is not constant

12 How do you buy bonds? PURCHASE AT AUCTION Booking at banks, post offices, or other authorized dealers, without commission (except for BOTs) Calendar and issue announcements (available also on the web site: and Details on the flyer distributed at the PA Forum and published on the web site

13 When do you buy bonds? PURCHASE AT AUCTION 1) Mid-month auctions: 3- and 12-month BOTs, CTZ, 3- and 5-year BTPs 2) End-of-the-month auctions: 6-month BOTs, CTZ, 3- and 10-year BTPs 3) In alternating months: 15- and 30-year BTPs

14 Consult the issues calendar! Medium-long Settlement BOT & CTZ announcement 1st medium-long announcement BOT & CTZ auction

15 How do you buy bonds? PURCHASE IN THE SECONDARY MARKET Through your own bank, the Post Office, or other authorized dealers Subject to negotiable commission At market prices: bond trading takes place according to the prices quoted in regulated markets

16 What are regulated markets like? Due to legal provision bonds are listed and traded in regulated markets designed to centralize trading, thereby guaranteeing that established procedures are respected. Markets are divided as follows: wholesale markets in which only financial-institution members can participate, and for elevated minimum amounts retail markets where individual investors, through financial intermediaries, can exchange even small amounts The existence of the wholesale market facilitates the functioning of the retail market, in that it guarantees a significant reference to the level and volume of bonds traded

17 Tax regime The tax regime of interest on Government bonds is 12.5% and it applies: for BOTs and CTZs to the difference between 100 and the issue price of the bond (which represents, for these zero-coupon bonds, the corresponding remuneration) for BTPs and CCTs to the coupons and to the difference between 100 and the issue price of the bond (when the issue price is less than 100)

18 Tax Regime Managed earnings regime : to facilitate the fulfilment of fiscal obligations to the Treasury, the tax is applied directly by the bank in which bond deposits are made

19 Some aspects of the innovative management of public debt With the dematerialization of Government bonds, as of 1998 bonds are no longer in paper form This has brought about notable benefits with regard to their custody and management: they can no longer be lost, stolen or forgotten (as, for example, in the case of bonds that are inherited or those stored in safety deposit boxes)

20 Some aspects of the innovative management of public debt The slump in yields is also due to a more efficient management of public debt and has allowed for a notable savings in the expenditure for interest, to the benefit of all citizens Interest expenditure in relation togdp (% ) 11,4% ,7% 2002

21 Trend of the ratio of public debt to GDP 130% 124,3% 120% 110% 106,7% 100% 90% 80% 70% 60%

22 Where do you get information? in the major newspapers (financial and otherwise) on the Public Debt web site