Finance loves saying simple things with difficult words — often in two languages at once: Italian screens say «denaro» and «lettera», international ones say bid and ask, and nobody tells you they’re the same thing. Here every term is explained in plain language, with the numbers of a real order book as the example.
Reading the book: prices and orders
Bid and ask (denaro e lettera)
There are always two prices, not one. The bid (Italian: denaro) is the highest price someone is willing to pay: if you want to sell, that’s your price. The ask (lettera) is the lowest price someone is willing to sell at: if you’re buying, look there. The full list of standing offers is the order book.
Bid-ask spread
The distance between the two prices: ask − bid for the amount, divided by the mid price for the percentage. Above: 94.30 − 93.68 = 0.62; 0.62 / 93.99 ≈ 0.66%. It’s the implicit cost of getting in and out — buy and sell in the same instant and you lose the spread. The more a bond trades, the tighter it gets: cents on a mainstream BTP, wider on thinly-traded ones like the BTP Futura in the example. Don’t confuse it with the «BTP-Bund spread» from the news: same word, different thing (that’s the yield gap between Italian and German bonds).
Volume and liquidity
Volume is how much traded in a day; liquidity is how easily you can buy or sell without moving the price. They’re related: high volume → full book → tight spread. In the example the day’s volume was €2.4 million — little, for a government bond: that’s why the spread is wide. Before a large order, check how much bid there really is on the book.
Market order and limit order
A market order says «buy (or sell) now, at whatever price is there»: fast, but on a thin book it can fill at worse prices than you saw. A limit order says «buy only up to X» (or «sell only from X up»): the price is guaranteed, the execution isn’t. On thinly-traded bonds the practical rule is simple: always use a limit. In the book above, a market buy filled at 94.30; with a limit at 93.94 you’d pay at most 93.94 — or nothing.
Price and interest
Coupon
The periodic interest the bond pays, as an annual percentage of face value. A bond with a 4% coupon on €10,000 nominal pays €400 gross a year — usually in two semi-annual instalments. The name comes from the paper coupons investors once physically detached from the certificate. Italian government bond coupons are taxed at 12.5%.
Accrued interest (rateo)
Interest accrues day by day but is paid only on coupon dates. Buy a bond between two coupons and the seller has earned their share: the accrued interest is that share, which you pay them at purchase — and get back in full at the first coupon. Not a cost: a pass-through. The Italian tax system knows it: on your first coupon you’re taxed only on the part accrued by you.
Clean and dirty price (corso secco e tel quel)
The quoted price is the clean price (corso secco): accrued interest excluded. What you actually pay is the dirty price (tel quel) = clean + accrued. That’s why the broker’s order estimate is always a bit higher than price × quantity: the difference is the accrued.
Above and below par
Bonds redeem at 100 (face value, «par»). Below 100, on top of the coupons you also earn the difference up to 100 at maturity; above 100 it’s the opposite — you pay more today than you’ll be repaid. Neither is a bargain or a rip-off per se: the price moves precisely so the overall yield lines up with what the market demands. The full story is in the BTP guide.
Types of bond
Fixed rate
The coupon is set at issuance and never changes: you know today every euro you’ll receive to maturity. That certainty has a flip side: when market rates rise, your bond’s price falls (see duration).
Floating rate
The coupon resets periodically following a reference rate: in Italy, the CCTs, tied to 6-month Euribor plus a spread. Future coupons don’t exist yet — so the yield to maturity can’t be computed in advance; in exchange, the price is far less rate-sensitive.
Step-up
A fixed but rising coupon: every period’s rate is written in the issuance decree (e.g. 0.75% for the first years, then 1.20%, then 1.65%…). Common misconception: it is not a floating rate — every future coupon is known to the cent from day one. It’s the mechanism of BTP Futura, BTP Valore and BTP Più: see the BTP Futura guide.
Inflation-linked
Principal and coupons are uprated with a price index, protecting purchasing power. The devil is in which index — Italy has two different families:
- BTP Italia → Italian inflation (Istat FOI index, ex-tobacco), uprating paid every six months;
- BTP€i → euro-area inflation (HICP ex-tobacco), uprating embedded in the principal and paid at maturity;
- the European cousins — French OAT€i, German index-linked Bunds — also track euro-area HICP (France also has OATi on French inflation). Same principle, slightly different indices and mechanics: before comparing, always check which inflation they follow.
Nominal GDP
The value of everything a country produces in a year, at current prices: it grows both when the economy produces more and when prices rise. It matters here for one precise reason: the BTP Futura loyalty bonuses are tied to average nominal GDP growth (with guaranteed floors and caps) — not to inflation, as often misreported.
Risk and sensitivity
Duration
Technically the «weighted average life» of the bond’s cashflows, in years: a single number summarising how far away your money is. Long bonds with small coupons have high duration; short or high-coupon ones, low. On its own it says little: its useful form is modified duration.
Modified duration
The most useful number for a bond’s risk: how much the price moves if market rates change by one percentage point. Modified duration 7 ≈ «rates up 1% → price down about 7%» (and vice versa). It holds for small moves — it overstates on big ones — but the order of magnitude is right. Hold to maturity and you get 100 back regardless; if you might sell earlier, read this number before buying. Our calculators (BTP, BTP Futura) compute it for every bond.
Credit rating
An independent agency’s grade (Moody’s, S&P, Fitch, Morningstar DBRS) of the issuer’s ability to repay. The scale, and the line that matters — Investment Grade above, High Yield below:
It measures only credit risk: nothing about rate risk, inflation or liquidity. More (outlook, watchlist, where to find it) in the BTP guide.
Tax words (Italy)
Capital gain (plusvalenza)
The gain you realise when you sell (or are redeemed) above your purchase price, commissions included. For Italian tax it’s «other income»: 12.5% on government bonds, and it can offset prior capital losses.
Capital loss (minusvalenza)
The realised loss: selling (or being redeemed) below your purchase price. It goes into the Italian «tax backpack» and for 4 years can reduce tax on future capital gains — but it cannot offset coupons, dividends or ETF gains, which is why it often expires unused. Full mechanics in the BTP guide.
Issue discount (disaggio di emissione)
If a bond is issued below 100 (say 99), that difference is an «issue discount» and counts as interest for tax purposes: taxed at 12.5% but it cannot offset capital losses. Not to be confused with buying below par on the market: that gain is a trading capital gain, and it does offset losses. Two roads to the same «discount», different tax treatment.