On Tuesday, Italy re-opens....>

ITALY AUCTION PREVIEW: On Tuesday, Italy re-opens E2.0-2.5bln of BTP 0.2%

Oct-20, auctions E3.5-4.0bln of a new BTP 1.45% May-25 and E1.75-2.25bln

combined of BTP 2.45% Sep-33 and BTP 2.7% Mar-47. 

- BACKGROUND: Italy is coming to the market at a time of political uncertainty.

Spanish and Portuguese auctions this week combine to heavy peripheral issuance. 

- RV/HISTORY: Italian debt has cheapened significantly to Spain in the past few

weeks and the 10Y spread is close to its widest (61bp) since last July. The 3Y

BTP 0.2% Oct-20 will benefit from the ease for small extension trades at

generous looking spreads; see the spread between the short BTP future CTD and

the BTP 0.35% Jun-20 and 0.2% Oct-20. The new 7Y BTP is already trading in the

grey market at a spread of 14.5bp over the 7Y bmk, BTP 1.45% Nov-24. Using a

spline curve to value these bonds shows the current bmk Nov-25 at 0.6bp below

the curve but the new May-25 as 1.4bp above. Thus, the new bond appears cheap at

first blush. Across all BTP auctions in 2018, the average bid-cover ratio has

been 1.3x. 

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