On Tuesday, Italy goes to.....>

ITALY AUCTION PREVIEW: On Tuesday, Italy goes to market, selling up to E3.75bln

of re-opened bonds: between E2.0-2.5bln of Jun-21 CTZ, and a total of between

E0.75-1.25bln of 0.10% May-23 BTPei and 1.30% May-28 BTPei.

- BACKGROUND: At last month's CTZ/BTPei auction on April 24, the Jun-21 CTZ sold

at average yield of 0.697% and 1.53x bid-to-cover. The May-28 BTPei linker last

sold on March 26, at average yield of 1.60% and 1.54x cover. The May-23 BTPei

was last sold on February 22, at 1.10% yield and 1.72x cover. 

- RV/HISTORY: Italian yields have round-dripped over the past month, with the

current CTZ yield rising from 0.70% at the inaugural auction last month to 0.94%

in mid-May, but having since fallen to 0.678%. Real yields have risen steadily

since the end of April, however, with the 10-Yr real yield up from 1.58% to

1.75% (peaking at 1.827%). With nominal yields steady, this implies a

significant drop in implied inflation breakevens (to lowest levels since 2016).

- CASH FLOW: This week sees E10.5bln of CTZ maturing, which is seen as

supportive of Tuesday's CTZ sale.

- TIMING: Results are due shortly after the auction closes at 1000BST.