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ITALY AUCTION PREVIEW: On Thursday, Italy sells E2.5-3.0bln of BTP 0.2% Oct-20
and E2.5-3.0bln of BTP 1.45% Nov-24.
- BACKGROUND: There was huge demand for all of the syndicated issues yesterday
including E26bln+ for the ultimately E9bln-sized BTP 20Y. Because the Republic
of Italy had the 20Y syndication, the size of today's auction is very modest. No
redemptions or coupons to help.
- RV/HISTORY: The 2020 area of Italy was the roll and carry favourite along the
Italian curve last year and, helped by growing election risk and year-end, the
yield on the BTP 0.2% Oct-20 has risen from a low of -0.123% in mid-Dec to 0.11%
today. The 3Y sector has also underperformed equivalent maturity Germany. There
is a similar theme for the BTP 2.05% Nov-24, although spread widening versus
Germany has been more modest because this tenor was not at the epicentre of the
carry trade in 2017. Interestingly, the spread between the two bonds on offer is
at its highest since Oct (132bp) and so while the BTP 1.45% Nov-24 has
underperformed Germany by less, the curve slope argues for the longer maturity.
- TIMING: Auction cut-off is 1000GMT, results are around 1015GMT.