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ITALY AUCTION PREVIEW: Italy's Dipartimento Del Tesoro taps Mar-20 CTZ for

E1.25-1.75bn on Tuesday.

- BACKGROUND: Italy last tapped Mar-20 CTZ on July 26, yielding 0.647% on a

bid-cover ratio of 1.61x, selling E2.0bln. This will be the sixth sale of the

issue in 2018, with the previous five seeing bid-to-cover average 1.65x.

- RV/HISTORY: The auction comes amid rising tensions between Italy and the EU

over immigration policy, and ahead of the mid-October deadline for Italy to

submit its 2019 budget for Brussels' approval. Italian yields have predictably

suffered. The Mar-20 CTZ's spread over the equivalent zero-coupon German Schatz

is 158.59bps, well off the 339.7bps high posted in late May but above the

sub-50bps level that prevailed from the CTZ's launch in March 2018 through

April, and the 134.7bps at the last tap on July 26. Indeed, the yield has nearly

doubled, from 0.647% to 1.258% on Aug 27 as the short-end and belly of the

Italian curve have underperformed. The increasing cheapness, and E6.7bn in

coupon payments by Italy this week, could help offset political risk concerns.

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