Introduction sectionTreasury Bills (BOTs)
Treasury Bills (BOTs)
BOTs are short-term securities with maturities up to one year. The remuneration, determined entirely by the discount at issue (the difference between the nominal value and the price paid), for fiscal purposes is considered anticipated, since tax for retail investors is applied at subscription.
BOT auctions are reserved to institutional intermediaries, authorized as per legislative decree no. 58 of 24 February 1998 (see the “Authorized dealers” section).
Dealers' bids in BOT auctions are expressed in yield terms rather than price, following the prevailing practice on the Euro area money market.
|Maturity||3/6/12 months, or any other maturity within one year (flexible BOTs).|
|Remuneration||Discount at issuance.|
|Type of auction||Competitive yield auction.|
|Auction frequency||Monthly for semi-annual and annual BOTs; variable, according to cash management needs, for quarterly and flexible BOTs.|
|Settlement date||T+2 on the primary and secondary markets.|
|Market convention||Actual / 360 for yield calculation.|
|Redemption||At par, lump sum at maturity.|
1. Investing in BOTs
Treasury Bills are issued with maturities equal to or less than one year and are listed in the regulated retail and wholesale markets.
Thanks to their being zero-coupon bonds, they are convenient to manage: the financial outflow required for this kind of investment is usually less than the nominal redemption value. Moreover, there is no need to reinvest periodical interest flows.
Those wishing to purchase BOTs through an auction must book the desired amount via an authorized intermediary within the business day preceding the auction.
Inasmuch as they are bonds subject to a dematerialised regime, subscribed BOT amounts are represented by the accounting entry in favour of the entitled.
Rules on the transparency of Government Bond placements (Decree of 15 January 2015) capped the fee that banks can charge their customers for BOT subscription. They cannot exceed the following percentages of subscribed capital:
- 0.03% for bonds with residual maturity less than or equal to 80 days;
- 0.05% for bonds with residual maturity between 81 and 140 days;
- 0.10% for bonds with residual maturity between 141 and 270 days;
- 0.15% for bonds with residual maturity equal to or greater than 271 days.
These fees must be added to the price applied by intermediaries to subscribers, which is the average weighted auction price.
The maximum fees described above can be reduced or cancelled in the case of near zero or even negative rates. Essentially, if the auction's weighted average price is less than 100, but the total sale price (including fees and taxes) is above 100, the fee is reduced to guarantee clients a burden no greater than 100 euros for every 100 euros of subscribed capital. If instead, the auction's weighted average price is equal to or greater than 100, clients pay no subscription fee.
2. Minimum denomination
BOTs can be subscribed for a minimum amount of 1,000 euros or multiples thereof.
3. Type of auction
BOTs are bonds redeemable at par. Their interest is given by the difference between the redemption and subscription prices.
Since April 2009, BOTs have been placed through competitive auctions in which dealers’ bids are expressed in yield instead of price terms. Authorized intermediaries can place up to five bids – each of at least 1.5 million euros. They must indicate the nominal value to subscribe and the relative yield, with a difference of at least 0.001% between the five bids. The Bank of Italy is responsible for executing BOT auction operations (see the “Government Bond auctions” section).
Having concluded the allocation of 6- and 12-month BOTs, a supplemental placement reserved to Specialists in Government Bonds is arranged. This second tranche is usually 10% of the amount offered in the ordinary auction (see the example of a “BOT issuance decree” in the “Laws and Regulations” section).
Standard maturities for BOTs are 3, 6, and 12 months. 6- and 12-month BOTs are regularly issued at monthly auctions, according the calendar published at the beginning of each year.
The Treasury issues quarterly and flexible BOTs according to its cash needs, with the same procedures used for standard BOTs. The Treasury also reserves itself the possibility of offering subsequent tranches of existing BOTs, as is the norm for medium/long-term securities.
5. Auction calendar
Auctions for 12-month BOTs are held at mid-month and those for 6-month BOTs at end-month. Discretionary quarterly BOT auctions are usually held at mid-month, while flexible BOT auctions take place according to cash needs.
6. Auction announcements