Treasury Bonds with Variable Income, known as OTRV, are being relaunched this Wednesday in a new series by the Portuguese Treasury and Public Debt Management Agency (IGCP). They serve as an alternative to Savings Certificates. How do they function?
The OTRV are “dematerialized securities governed by Portuguese law, representing medium and long-term loans of the Portuguese Republic,” explains IGCP, adding that they are created to boost the public debt market through diversification of public debt instruments, distribution channels available to investors, and expanding the investor base of the Portuguese Republic.
What are the features of this product?
IGCP highlights the following points:
- The nominal value of each OTRV is 1,000.00 euros (one thousand euros);
- The maximum subscription limit per investor is 1,000,000.00 euros (one million euros), corresponding to 1,000 (one thousand) bonds;
- The applicable nominal interest rate is variable;
- The OTRV are issued for terms up to 10 years, with repayment made at the maturity date at the nominal value in a single payment.
The subscription price is therefore one thousand euros per each July 2031 Treasury Bonds with Variable Income (OTRV), and in exchange for each July 2025 OTRV, one July 2031 OTRV is provided.
How much do OTRV yield? How is interest paid?
Interest payments on OTRV occur in January and July of each year, meaning they are “semiannual and paid in arrears on January 18 and July 18 of each year.”
These interests are “calculated at a variable interest rate equal to the 6-month Euribor plus 0.25%, with capital repayment taking place on July 18, 2031.”
Are there any other costs associated with OTRV?
According to IGCP, “in addition to the subscription price, there may be other expenses related to the collection of subscription orders, which must be communicated by the financial intermediary to the investor when the subscription order is transmitted (and must be included in the financial intermediary’s price list).”
Furthermore, “additionally, there may be custody expenses and commission fees on interest payment and redemption, which should be communicated by the financial intermediary to the investor.”
“At any time before the subscription, any potential investor may request from a financial intermediary the simulation of the costs of the operation they intend to carry out, obtaining the respective internal rate of return, and consult the price list of financial intermediaries on the CMVM website,” recommends IGCP.
What are the differences between OTRV and Savings Certificates?
IGCP explains that, “similar to other retail instruments, the issuance of OTRV promotes the application of medium and long-term savings of savers in debt securities with characteristics similar to Treasury Bonds, although with variable remuneration.”
Thus, both Savings Certificates and OTRV remunerate investors based on the variation in Euribor rates, but the remuneration of the former is immediately defined.
Moreover, OTRV can be traded on the secondary market at Euronext Lisbon.
