A BTP looks simple — you lend money to the State, collect coupons, get 100 back at maturity. But there’s a lot underneath that few explain well: what buying above or below par really means, duration, and how much is actually left after tax, stamp duty and inflation. Let’s look at the data.
Try it: what it really returns
Enter the bond’s price, coupon and maturity (or start from the example) and see the net and real return. Then, below, we explain each piece.
- Nominal value
- — the amount coupons are calculated on and that’s repaid at maturity. The reference is always 100.
- Coupon
- — the interest the bond pays, fixed; for BTPs usually every 6 months.
- Price
- — what you pay on the market per 100 of nominal — can be above or below 100.
- Maturity
- — the date you get the nominal (100) back.
- Yield (YTM)
- — what you actually earn, combining coupons and price. It’s the number that counts.
This calculator is for fixed-rate bonds (BTPs, Bunds, OATs, Gilts, supranationals…). For step-up bonds — rising coupons fixed in advance, like BTP Futura and BTP Valore — there’s the dedicated BTP Futura guide, with its exact calculator. For floating-rate and inflation-linked bonds (BTP Italia, BTP€i) — which follow different rules — we’ll publish dedicated articles soon.
Above and below par: why the coupon isn’t the yield
The beginner’s first mistake is thinking «4% coupon» means «I earn 4%». It doesn’t: your real return also depends on the price you pay. The redemption value is always 100 (par); the market price isn’t.
Below par (e.g. 94): you buy at a discount and get 100 back at maturity → on top of the coupons you pocket a capital gain. Easy and intuitive.
Above par (e.g. 106): here’s the myth — «I pay 106 to get 100 back, so I lose». Wrong. A bond trades above par precisely because its coupon is richer than what the market offers today: those extra coupons more than make up for the points you «lose» at redemption. Looking only at 106→100 forgets the coupons.
What settles it? The yield to maturity (YTM/IRR): it combines coupons and capital gain/loss into a single number. That’s what matters — and it’s the big number in the calculator above. Try moving the price between 94, 100 and 106: the yield stays positive even above par, just lower. The price adjusts until the effective yield matches the market’s. Watch the opposite extreme, though: if you overpay — beyond the total you’ll receive (coupons + redemption) — even the coupons aren’t enough and the yield turns negative. Put a very high price in the calculator and you’ll see it.
And tax adds a detail, this time against buying above par. At the same gross yield, for a retail investor a bond above par usually returns a touch less net: you pay the 12.5% on the higher coupons straight away, while the difference you «lose» at maturity (buy at 106, get 100 back) becomes a capital loss — only a tax credit, which on top of that expires after 4 years and can’t offset coupons, dividends or ETF gains, so it often goes unused. You can see it in the calculator above: move the price and watch the net yield drop above 100. That’s how the mechanism works, not advice.
Accrued interest: why you pay more than the price shown
Buy a BTP halfway between two coupons and your account is debited more than the quoted price. It’s not a mistake: it’s accrued interest (rateo), the part of the coupon already matured that belongs to whoever sells you the bond (a coupon goes in full to whoever holds the bond on the payment date).
The quoted price is the «clean price» (the bond alone); what you actually pay is the «dirty price» = clean price + accrued interest. Example: on €10,000 nominal, a €225 semi-annual coupon; halfway through you pay about €112 of accrued interest on top.
But it isn’t a cost: at the first coupon you receive the whole coupon, getting back the accrued interest you advanced. You simply «lent» the seller their share of the coupon. And the tax knows it: the accrued interest you pay is deducted from the coupon’s taxable base, so you don’t pay tax twice on the same interest.
Duration: when you actually get your money back
Duration is, in plain terms, the average time it takes to get your money back. Each coupon returns a piece of your capital along the way, not just at the end: so on average you get it back sooner — and that’s what shortens duration. With a zero-coupon you receive everything in one go at maturity, and duration equals the maturity.
Why it matters: duration also measures how much the price swings when the ECB moves rates — the longer it is, the more the price moves. Rule of thumb: if rates rise 1%, a bond with duration 7 falls about 7% (and vice versa). That’s why, all else equal, a long BTP is more «nervous» than a short one.
One clarification, because duration’s two faces have two names. The «average time to get your money back» (in years) is Macaulay duration. The «rates +1% → price −7%» rule uses modified duration instead: it’s Macaulay divided by (1 + yield/frequency) and measures, as a percentage, how much the price moves for each 1% change in rates. They’re close on low-yield bonds, but not identical. It’s the modified one — the more useful for gauging risk — that the calculator shows under «Duration».
Country risk: the spread and the 2011 crisis
A BTP’s price doesn’t move only with ECB rates: it also depends on confidence in Italy. The gauge is the spread — the yield gap between the BTP and the German Bund (the «safe» benchmark): the higher it goes, the more the market demands to be paid for Italy risk, and the lower the price of BTPs already trading. The 2011-2012 crisis is the textbook example.
Read it carefully: whoever sold in 2011 crystallised the loss; whoever held to maturity (and Italy didn’t default) got their 100 back. Price volatility isn’t a certain loss — it only becomes one if you sell early, or in a default.
Credit rating: how to read it (and where to find it)
The rating is an assessment of the issuer’s ability to repay interest and principal on time, assigned by independent agencies (Moody’s, S&P Global, Fitch, Morningstar DBRS). The higher it is, the lower the default risk — but it’s not a guarantee of repayment, nor a forecast of the bond’s price.
The line that matters is between BBB− and BB+: above is Investment Grade (high credit quality), below is High Yield — higher returns precisely because the risk is greater. Italy is currently around BBB (Investment Grade), Germany AAA.
Next to the rating you often find the Outlook (likely direction over 6-24 months: positive, stable or negative) and sometimes a Watchlist (rating under near-term review). Neither changes the current rating.
Where to find it: your bank or broker usually shows it next to the bond (e.g. «BBB+»), sometimes with the agency’s name. One detail: supranational bonds (EIB, EU, ESM, EFSF) carry their own rating — often higher — and don’t inherit the rating of the individual countries backing them.
The four risks of a BTP (and how to live with them)
Let’s line them up. A BTP has four main risks:
- Rate risk — if rates rise, the price falls. You saw it with duration: the longer it is, the more the price moves.
- Country risk — if confidence in Italy drops, the price falls (the spread). It’s measured by the rating — how to read it and where to find it is in the section just above.
- Inflation risk — the «hidden tax». The coupon is fixed: if inflation rises, your purchasing power falls even if the nominal return doesn’t change. That’s exactly why inflation-linked bonds exist (BTP Italia, BTP€i) — a separate article.
- Currency risk — only kicks in if you buy a bond in a currency other than yours. An Italian buying a BTP (in euros) doesn’t have it; a UK or Swiss buyer does. The calculator has a currency selector for this.
There’s also a less-known one, reinvestment risk: when coupons and principal come back, you may have to reinvest them at lower rates. It’s also why the YTM is only theoretical (it assumes you reinvest every coupon at the same rate).
What it costs to buy a BTP
Less than you’d think, especially at issuance. The items are:
- Commissions — at issuance: zero. If you subscribe a BTP at placement you pay no commission: the Treasury pays the placing banks (source: MEF transparency decalogue). On the secondary market instead — buying a BTP already trading — you pay your broker’s normal commissions.
- Custody (securities account): by law it can’t exceed €10 per half-year (a cap, can be less; only if the account holds government bonds exclusively).
- Bid-ask spread: the gap between buy and sell price. On BTPs, in normal times, it’s tiny (they’re very liquid) and it’s a one-off per trade, not annual → negligible. But beware: in a confidence crisis (like 2011) liquidity can dry up and the spread widen considerably.
- Stamp duty: 0.2% a year on the account value (we cover it under tax; it’s the only truly recurring cost — rules and the annual-vs-quarterly choice in our stamp-duty guide).
Tax: the 12.5% rate and how to recover capital losses
These are Italian tax rules — if you’re tax-resident elsewhere, yours differ. Good news: on Italian government bonds (and «white-list» equivalents) the rate is a reduced 12.5%, not the 26% on other instruments — on both coupons and the capital gain (buy below par, get 100 back at maturity).
But here’s where almost everyone slips: coupons and the capital gain sit in two different tax «buckets». Coupons are redditi di capitale (investment income); the gain (or loss) between purchase price and redemption is a reddito diverso (capital gain). The two don’t talk.
How to recover capital losses (the «zainetto fiscale»)
When you sell or redeem at a loss you generate a capital loss. It goes into a «backpack» and you can use it to cut tax on future capital gains — but only in the same bucket (redditi diversi) and within the current year plus the next 4. After that, it’s lost.
What it can offset: capital gains — stocks, bonds and certificates sold at a profit, and precisely the gain at maturity of a BTP bought below par. What it can’t offset: coupons and dividends (investment income). In a table:
A detail for the nitpickers: gains/losses on government bonds enter the backpack at 48.08% of their value (12.5% equals 26% of 48.08%). So a €100 loss on a BTP is «worth» about €48 of credit against 26%-taxed instruments. Source: Italian Legislative Decree 461/1997; TUIR arts. 67-68.
5 myths to bust
- «The coupon is my return.» No: your return also depends on the price you pay. What counts is the YTM, not the nominal coupon.
- «Buying above par is a loss.» It depends on how far above. At normal market prices, no: the coupons make up for it and the YTM stays positive (just lower, and a touch less tax-efficient for a retail investor). But if you overpay — beyond the total you’ll receive (coupons + redemption) — the YTM turns negative and you do lose, even to maturity. Rule: watch the YTM, not the price.
- «A BTP can’t lose.» It can: if you sell before maturity (rate and spread risk), or in real terms, to inflation.
- «Capital losses offset everything.» No: only capital gains (redditi diversi). Not coupons, dividends or ETF gains.
- «Duration equals maturity.» Only for a zero-coupon. With coupons, duration is shorter.
Frequently asked questions
How much tax do you pay on a BTP?
On Italian government bonds the rate is a reduced 12.5% (instead of 26%), on both coupons and capital gains. On top there’s a 0.2% yearly stamp duty on the account value.
What happens if I sell a BTP before maturity?
You sell at the current market price, which can be above or below what you paid. If rates have risen in the meantime (or the spread has widened), the price falls and you might get less than 100, realising a capital loss; if they’ve fallen, a gain. The certainty of getting 100 back only holds if you keep the bond to maturity.
What is a BTP’s duration?
It’s the average time it takes to get your money back. It also measures price sensitivity to rates: the longer it is, the more the price swings when the ECB moves them. For a zero-coupon it equals the maturity.
Do bonds have commissions at issuance?
At issuance (placement) you pay no commission on government bonds: the Treasury pays the banks. On the secondary market, though, you pay your broker’s normal commissions.
What is accrued interest (rateo)?
It’s the part of the coupon already matured that you pay the seller when buying between two payments. The quoted price is the «clean price», but you pay the «dirty price» = clean price + accrued interest. You get it all back at the first coupon.
Can a BTP default?
In theory yes: if the State fails to honour its debt (default) you can lose part of your capital or coupons. For an advanced economy like Italy it’s considered unlikely — that’s exactly what the rating measures — but no bond is risk-free. It’s why even «held to maturity» isn’t an absolute guarantee.
How do you recover capital losses?
They go into the «backpack» and offset future capital gains (redditi diversi) within the current year and the next four. They don’t offset coupons or dividends. A BTP bought below par, which produces a capital gain at maturity, can serve precisely to absorb those losses.