Forecasts for BOTs are continually decreasing and many are wondering whether it is still worth investing for high yields: the situation.

2023 was a year of numerous transformations regarding BOTs which went from government bonds used to park liquidity, waiting for investment opportunities to instruments capable of generating returns. The driving force behind this change was the increase in rates by the ECB, which brought BOT yields from almost zero, or even below zero during the Covid-19 pandemic, to almost 4% during the of the last two years.

Declining returns for Bots but it could still be useful to invest –

The prospects for this 2024, however, do nothing other than indicate a downward trend in returns. This is mainly caused by the impending changes in the financial environment, with the ECB preparing to reduce rates after having raised them to their highest levels. If the trend is an indicator at the beginning of the year, the forecasts for BOTs in 2024 are based on a pessimistic view. In fact, returns are decreasing compared to the levels reached during 2023. It is therefore important to evaluate the current scenario before understanding whether to invest or not.

BOT forecasts falling, it may still be worth investing: what needs to be evaluated

The outlook for 2024 therefore indicates a downward trend in yields, mainly due to impending changes in the financial environment, with the ECB set to reduce interest rates. Yet the longer the ECB waits before starting to cut rates, the higher BOT yields will remain in 2024. This way BOTs could remain more attractive over the course of the year, with yields set to maintain a notable level.

Why BOTs are still convenient for investments –

This means that despite expectations of a return to a more conservative role for BOTs, these could still be investment instruments. At the same time, accurately predicting BOT yields in 2024 is complex.

The first factor to consider is the initial auction of the new year and the relatively stable conditions of the secondary market, under which it could be assumed that yields will remain competitive. The turning point could occur when the ECB provides clear indications on the timing of the rate cut.

According to the ECB’s chief economist, Philip R. Lane, the rate cut will be implemented as a series of measures, rather than as a single action. At that time, BOT yields are likely to decline more sharply.

Lane also stated that no discussions about a change in direction have been initiated at this time. Overall, in the first months of this year, BOT yields could remain relatively stable, with a more marked reduction in the second half of the year in conjunction with the ECB’s decisions.

Despite the hypothesis of a reduction in returns, BOTs could continue to be a convenient choice compared to other low-risk investment instruments, such as deposit accounts. Furthermore, in a context of fluctuating yields for government bonds, BOTs with shorter maturities may represent a prudent choice to protect against market fluctuations. For this reason, despite the declining yield prospects, the appeal of BOTs remains high.