What are the CCTS and what are the main characteristics? Let’s see how their return is formed and when it is convenient to invest in these instruments.
The CCT can be classified as financial indexing securities issued in euro starting from January 1999. They are public debt coverage instruments consisting of bearer securities or order at medium-long term and provide a variable rate which is determined by adding a fixed increase (spread) to the 6-month Euribor rate. CCTs have a unit denomination minimum of 1,000 euros and a maturity of 3 to 7 years.
Indexing
The indexation mechanism provides that the first coupon is fixed at the moment of issue. The subsequent coupons are then determined on the basis of the gross yield, calculated on the basis of the Euribor 6 months rate recorded on the second business day prior to the first day of maturity of the coupon and a final maturity which, as a rule, is equal to 7 years.
The indexation of the coupon at 6-month Euribor rate was chosen to replace the half-yearly Bot previously used to determine the CCT coupon and with the aim of broadening the investor base in floater instruments issued by the Ministry of economics and finance and strengthen the levels of efficiency and liquidity of the secondary market for these instruments.
In recent years, the current CCT, whose coupons, as mentioned above, are linked to the performance of the auction yield of the 6-month BoT, have shown, on some occasions, suboptimal performances on the secondary market, with levels of price volatility that are unusual for the nature of the instrument. This trend is attributable to the mainly domestic profile of the CCT market unlike other government bonds. The new parameter, introduced in 2010, is one of the main indicators of the Eurozone money market and enjoys wide diffusion among operators in the European bond sector. As such, it therefore possesses the conditions for the new instrument to benefit from a more diversified penetration into the portfolios of national and international operators.
Spread or surcharge
As already mentioned, the interest is paid with deferred half-yearly coupons indexed to the 6-month Euribor rate. But it is necessary to know that the remuneration is also affected by a spread and possibly the issue gap.
The spread with respect to the 6-month Euribor, determined by the Treasury at the time of issue and fixed for the entire duration of the CCT, is between 0.30% and 1%. This increase consists of an additional coupon created to compensate investors for the lower liquidity of a CCT compared to that of a BoT.
Market and yield
The CCTS are placed on a monthly basis through marginal auction with a settlement date of two working days. They are traded on the MOT, which is the secondary market for Government Bonds.
The calculation of the return of a CCT represents a obvious simplification, since the value of the future coupons of a CCT depends on the evolution of the Euribor.
The latest issues of CCTS
In the last issue on 29 September 2022, the Italian Ministry of Economy and FInance issued 1 billion euro in CCTS with maturity on 15 April 2029, with a spread of 0.65%. The overall gross yield of the stock was set at 3.127%, with a hammer price of 96.63. Based on the calculations of Assiom Forex, the net yield of the CCTeu in question is equal to 2.7967%.
Original article published on Money.it Italy 2022-09-29 17:44:18. Original title: Cosa sono i Certificati di credito del Tesoro? Tutto quello che c’è da sapere su CCTeu
