Italy sells E1.5-2.5bln CTZ...>

ITALY AUCTION PREVIEW: Italy sells E1.5-2.5bln CTZ 0% Oct-19 and E1.25-1.75bln

of BTPei 0.1% May-22 and BTPei 1.25% Sep-22 on Friday. 

- BACKGROUND: The Italian election is approaching but there is no panic in the

Italian debt market yet. On the horizon, there is a 22bln BTP redemption on Feb

1 although settlement date for this auction is Jan 30. 

- RV/HISTORY: CTZ and traditionally these instruments head to the domestic

investors. They also tend to trade on a cheaper curve that the BTPs: the BTP

0.05% Oct-19 to CTZ Oct-19 spread is 4bp in yield despite very little difference

in cash flows (5bp coupon difference makes a subtle difference at ECB

operations). The Oct-19 trades with an 11bp spread to the CTZ May-19, close to

its steepest. The 6 auction average bid-cover ratio is 1.78x. For the linkers,

the real yield of BTPei May-22 is -0.453%, still very low on an historical basis

but the breakeven, even though having risen to 1.02%, is still fairly modest

compared to accruing inflation rates. 6 auction average cover ratio for linkers

has been 1.86x.  

- TIMING: Auction cut-off is 1000GMT, results are around 1020GMT.