Italy sells a new CTZ 0%......>

ITALY AUCTION PREVIEW: Italy sells a new CTZ 0% Oct-19 for between E2.5-3.0bln

on Wednesday alongside a E0.75-1.25bln tap of the BTPei 1.3% May-28.

- BACKGROUND: The ECB meeting is on Thursday. There is a 6Y BTP Italia issue in

3 weeks.

- RV/HISTORY: This is a brand new CTZ and traditionally these instruments head

to the domestic investors. They also tend to trade on a cheaper curve that the

BTPs. In the grey market, the Oct-19 trades with a 9.1bp spread to the CTZ

May-19. This 9.1bp roll is equivalent to a 4.5bp more generous spread to 6m

euribor. What is really interesting is that the BTP 0.05% 15-Oct-19 bond swaps

5.8bp more expensive than the CTZ zero coupon 30-Oct-19. Note the 5bp coupon

difference, which makes a subtle difference at ECB operations. The CTZ curve is

cheap. Regarding the linker, we hear that Italian linkers make sense as a carry

trade into year end and if you think the ECB does a dovish taper, this is the

trade. Linkers usually see good demand but the BTPei28's saw only a 1.39x cover

at their last outing on Jul 26.

- TIMING: Auction cut-off is 0900GMT/1000BST, results are around 0920GMT.