Italy sells E1.25-1.75bln.....>

ITALY AUCTION PREVIEW: Italy sells E1.25-1.75bln of CCTeu Apr-25, E3.0-4.0bln a

new BTP 0.95% 1-Mar-23, E1.5-2.0bln BTP 2% Feb-28 (3rd tranche). 

- BACKGROUND: There are EUR9.2bln that will be paid on Thursday and fits nicely

into the value date of this auction. However, political risk is high in Italy

with weekend elections approaching.

- RV/HISTORY: The new BTP 0.95% Mar-23 is trading at a 21bp spread in the grey

market to the BTP 0.90% Aug-22 and is 10bp cheaper in terms of asset swap

spreads. This spread appears to be slightly north of the interpolated asset swap

curve for the liquid BTPs i.e. the security is trading fairly cheap. The fairly

new 10Y will need a good foreign investor sponsorship but the election may

prevent this. The 10Y spread to Germany is 136.6bp, around 16bp above post-2016

lows. The CCT Apr-25 trades at ASW+72.6bp, a similar maturity BTP 1.5% Jun-26 is

ASW+77bp, so it does not appear neither cheap nor particularly expensive. We do

not imagine that foreign demand will be strong at Tuesday's auctions.

- TIMING: Auction cut-off is 1000GMT, results are around 1015GMT.