Inflation-Linked BTPs
Inflation-linked BTPs offer investors protection against rising prices: as inflation increases, so does the bond nominal return. This higher return is achieved through an indexation mechanism, which adjusts both the value of the coupons and the bond face value in line with inflation indices.
The euro area inflation-linked BTP (BTP€i) pays variable coupons that depend on the rate of euro area inflation. These coupons are designed to provide a stable real return - that is, a return that preserves the bondholder's purchasing power. At maturity, the face value of the bond is repaid, adjusted for inflation.
A similar product is BTP Italia, which is also an inflation-linked bond, but it is aimed exclusively at individual investors and is indexed to Italian inflation, as measured by the ISTAT consumer price index for blue- and white-collar households (FOI), excluding tobacco.
With BTP Italia, the inflation adjustment on the capital is paid every six months, which means the inflation protection is delivered immediately. At maturity, the bondholder receives the original face value.
A loyalty bonus is also available for investors who buy the bond at issue and hold it until maturity. This bonus is a fixed percentage (for example, 1 per cent) of the face value - the same as the amount invested when the bond was issued.
The issue price is always equal to the face value, which means that a bond with a face value of €1,000 will always cost €1,000 at the time of subscription.
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