Government bonds auctions and Treasury's money market operations

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The Bank of Italy, following the practice adopted by other central banks, works on various levels with the Ministry for the Economy and Finance (MEF) to manage the public debt.

The operations it undertakes in this role include:

  • placements and buy-backs of government securities,
  • financial servicing of the debt,
  • assistance in drafting issuance policies and preparation of forecasts for coverage of the borrowing requirement through securities placements,
  • financial calculations associated with government securities, and
  • money market operations with the banking system.

Placements and buy-backs of government securities

The Treasury’s borrowing requirements are financed mainly by issuing securities. The auction system managed by the Bank of Italy is the main method of placement on the domestic market, as it is the one best able to achieve the Treasury’s issuance policy objectives of transparency and regularity.

Efficiency in carrying out placement and buy-back operations reduces the uncertainty for intermediaries participating in auctions and hence the cost of borrowing. With the technical assistance of the Bank of Italy the Treasury is able to ensure that the secondary market for government securities functions in an orderly manner, with sufficient liquidity and breadth of trading. The Bank of Italy’s role includes:

  • developing and managing the technological platform used for auctions,
  • conducting the auctions, which are fully automated and follow different technical procedures according to the securities offered,
  • dealing with participants and checking their legal and technical eligibility, and
  • monitoring the settlement of allotments of government securities, including those to underwriting syndicates.

The Bank of Italy also performs a number of tasks connected with the servicing of foreign currency loans issued on the international capital market.

Types of government securities and issuing techniques

The Treasury issues the following securities:

  • BOT (ordinary Treasury bills): discount securities issued with 6- and 12-month maturities or with maturities of 3 months and up to 1 year to deal with temporary cash imbalances,
  • CTZ (zero coupon Treasury certificates): discount securities with 24-month maturities,
  • CCT (floating rate Treasury notes): securities with 7-year maturities and semi-annual coupons indexed to 6-month BOT yields at issue,
  • CCTeu (variable coupon Treasury certificates): securities with 5- and 7-year maturities and semi-annual coupons indexed to the 6-month Euribor,
  • BTP (Treasury bonds): securities with fixed semi-annual coupons and maturities of 3, 5, 10, 15 and 30 years, and
  • BTPi (indexed Treasury bonds): floating rate securities whose principal and semi-annual coupons take into account rates of inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP) excluding tobacco; they are issued with 5-, 10- and 30-year maturities. Included in this category are BTP Italia, floating rate securities with 4-year maturities and semi-annual coupons indexed to Italian inflation (Istat’s FOI index). Investors acquiring securities at issue and holding them to maturity also receive a loyalty bonus.

Placements and buy-backs of domestic securities are conducted mainly by auction. The MEF authorisation decrees for securities issues require placements to be carried out by the Bank of Italy, which signs agreements with market operators after ascertaining that they meet the stipulated legal and technical requirements.

Auctions take place according to an annual calendar drawn up by the Treasury at the beginning of each year and containing the announcement, auction and settlement dates for new issues.

The Treasury generally adopts the system of syndication for new issues of long-term government bonds, issues of new securities and the placement of securities on international markets. A syndicate is a group of banks that is given the mandate to place a specific amount of government bonds.

Two different methods are currently used to calculate the allotment price:

  • competitive bids for BOTs (as of April 2009 bids are made in terms of yield not price), and
  • marginal auction for medium and long-term securities.

In competitive auctions, each successful participant pays the price corresponding to the yield stated in the bid; in marginal auctions, allotment is made at the marginal accepted bid (this is also called the uniform price auction technique, as there is a single allotment price for all successful participants).

In the case of BOTs the Treasury announces the actual quantity available, while for other securities it announces a minimum and maximum quantity to be offered, which will be decided after all the bids have been made.

In BOT auctions an exclusion price is calculated, below which no bids will be accepted. This system is not used in other auctions, although the faculty to decide the quantity of securities after bids have been made provides a similar safeguard against excessively low offers. Once the auction results become available the Bank of Italy distributes them to the participants, the press and financial information networks.

Interest rates

The Bank of Italy produces a number of financial publications as part of its role in public debt management. These include:

  • Rendistato monthly index of the average weighted yield on a basket of government securities, also available disaggregated by residual maturity.  The Rendistato follows the performance of the government securities market and is used by market participants for various financial indices and swaps (for details of the methods of calculation see The Yield on Government Securities (Rendistato). A Guide, in this section of the website),
  • RendiBot (gross yield on BOTs) monthly index of the gross average yield on zero coupon government securities with a residual maturity of less than 12 months,
  • yield at issue on 12-month Treasury bills, which is applied in the case of contracts that do not indicate an interest rate or that contain clauses for the calculation of interest rates deemed null and void, pursuant to Article 117.7 of the Consolidated Act on Banking,
  • gross 6-monthly interest rate on CCTs, linked to the gross semi-annual yield on 6-month BOTs; coupons are calculated by adding a spread to the average yield of 6-month BOTs, as defined in the decree authorising the issue,
  • gross 6-monthly interest rate on CCTeus, linked to the 6-month Euribor; the semi-annual coupon is calculated by adding a spread to a gross annual yield equal to the 6-month Euribor, as defined in the decree authorising the issue,
  • gross semi-annual interest to be paid on the due-dates of coupons on BTPs indexed to euro-area inflation, based on a minimum denomination of €1,000; The interest is calculated by multiplying the coupon rate by the minimum denomination of the bond (€1,000) and by the indexation coefficient on the coupon’s payment date. The series is updated as soon as the Treasury notifies the indexation coefficients for the payment dates,
  • prices and yields at issue of government securities, which are also used to check compliance with the regulations on transparency by banks allocating government securities to the public (Ministerial Decree of 12 February 2004).
  • gross semi-annual interest amounts and amounts of principal revaluation of BTP Italia.

Money market operations

The objective of money market operations is to monitor daily the balance on the Treasury’s payments account with the Bank of Italy, making it easier to manage the public debt and finance the state borrowing requirement.

As part of this task, the Bank of Italy:

  • exchanges information with the MEF concerning the balance on the account,
  • carries out money market operations with the banking system; these consist in auctions conducted by the Bank of Italy on behalf of the MEF and in bilateral negotiations managed by the MEF itself or by the Bank of Italy on its behalf.