Italy plans to offer EUR2.25-2.75bn of its 3Y reference, EUR2.75-3.25bn of its 7Y reference and EUR1.25-1.50bn of its 30Y reference at tomorrow’s auction. If the maximum allocation is achieved it would take Italy’s issuance to c.62.5% of its total funding needs for FY2023 (EUR315bn). This auction cycle arrives hot on the heels of the inaugural BTP Valore deal that surprisingly reached a total amount above EUR18bn, contributing more than 5.5% to Italy’s overall funding programme for the year. This success confirms that domestic retail investors continue to be a relevant net buyer of BTPs, with their quota of national public debt having increased from the historical minimum of 7.8% in February 2022 to the current 9.9% (the last available data refers to February, but it will arguably be even greater in May).
- BTP 3.80% April 2026. This will be the fourth auction of this reference, with a current outstanding amount slightly above EUR13bn. It was last auctioned in mid May, when it was sold for a total amount of EUR3.50bn with a modest bid-to-cover ratio of 1.48x, in line with the average btc ratios of the year for the 3Y benchmarks. We note that after this auction, the bond could reach the outstanding amount of EUR16.5bn (if the reopening reserved for the specialists is also sold) and in this sense it might be the last auction for this reference. In fact, we note that on 15 April 2026 the Italian Treasury will face a concentration of redemptions (more than EUR32bn), which will generate an excessive refinancing risk from their perspective. In this sense, even though they could intervene with buybacks in the coming months and years, it might be more efficient to try to limit the issuance of this bond, rolling on a new 3Y benchmark in the mid-July auction. Since the last auction in mid May, the Italian curve in the 1Y-3Y area has continued to flatten, reaching record inversion at -c.18bp at the beginning of June. Even though this has been a trend common to the other European curves (both core and peripherals), in the Italian one it was more pronounced and it has led to a flattening of the Italian credit curve in the 1Y-3Y area (especially if it is measured vs. €-swap curve). However, in the past week the good momentum of the Italian 3Y tenor has reduced, and it has widened c.8bp from the peak at the beginning of June. Specific to the reference, the bond does not signal any brilliant performance and, on the contrary, in the last week the on-the-run premium increased by 0.5bp (to 5.5bp from 5bp, which was the same level as the last auction in mid May), while the roll vs. the previous benchmark (BTP January 2026) has remained substantially unchanged at +4.5bp. Lastly, in the repo market it does not signal any tensions in terms of specialness, with the S/N rate roughly in line with the G.C. rate transactions, suggesting that there is limited risk of significant overpricing at tomorrow's auction.
- BTP 3.70% June 2030. This will be the third auction of this reference, with an outstanding amount that will reach EUR11.8bn after this auction (or EUR12.5bn if the reopening reserved to specialists is sold). In the last auction it was offered for a total amount of EUR3.75bn and it was sold with a btc ratio of 1.39x, again roughly in line with the average btc ratios for the 7Y benchmarks this year. In the last month, the Italian 5Y-7Y area has been the best performer in the European sovereign spectrum vs. both core and peripherals curves. In fact, the bulk of the flattening in the Italian credit risk took place exactly in the belly of the curve (with natural positive spillover effects on the 3Y and 10Y tenors) which was the part of the curve that remained more under pressure in 1Q, offering a relevant pick up vs. core and other peripherals due to the widespread scepticism about the Italian market and pricing in RV at the beginning of the year. As already mentioned several times in recent weeks, since April it has been pretty clear that the mood and appetite for Italian bonds has changed for the better, particularly from foreign investors, with market flows that are redefining new structural levels for the slope of the Italian credit curve (flatter). Looking at the reference, in contrast to the positive momentum for the belly of the Italian curve, the bond has signalled some specific underperformance vs. surrounding bonds: i) the on-the-run premium at c.5bp is close to its maximum level since the bond was launched in mid-April; ii) the bond looks cheap in z-spread and spline; iii) looking at the past week’s performance, it indicates c.0.5bp of concession premium. This cheapening mainly refers to the fact this bond is one of the more recent new benchmarks of the Italian curve and, in this sense, we might expect a more impressive performance in RV terms when it becomes more clear when a new 7Y benchmark will be launched (in September or October). Similar to what we noted for the 3Y reference, the bond is not signalling any tensions in the repo market, with the last auction able to fully match the shortage of this bond (that was making it slightly rich in the repo market). The cheapening of this reference in RV and the good momentum for the Italian 7Y should support the overall execution of the auction, on which we do not expect any additional concession.
- BTP 4.50% October 2053. Regarding the long end, the Treasury has decided to tap the BTP 30Y benchmark for the first time. The bond was launched in February through a syndicated deal by the Italian Treasury with an amount of EUR5bn, priced 14bp above the previous 30Y BTP reference (September 2052). Since the peak of inversion in the 15Y-30Y area occurred at the beginning of March, the Italian curve has reverted the main trend, with a steepening of almost 20bp, similar to what the other sovereign curves did in the last three months. Within this main trend of curve steepening, in the last two weeks the Italian 30Y area vs. shorter maturities (namely, 15Y) has underperformed both core and peripherals by c.5bp. Only vs. the €-swap curve has the slope of the 15Y-30Y remained substantially unchanged. Looking at the reference, since mid March it has stabilised its pick-up vs. BTP September 2052 at +18/19bp, 4/5bp above the level at which it was priced in February. In terms of on-the-run premium, we quantify it at +7.5bp (extrapolating a FV from BTPs 2051 and 2052), in line with its average level since it was launched. Looking in more detail at the recent performance, we note that in the past week the bond has been the worst performer in terms of yield increase within the 20Y-30Y area (by c.2bp, which we interpret as the pre-auction concession), perhaps due to the incoming supply that was partially expected by the market. As for the other bonds commented on above, the repo market does not signal any tension in terms of shortage of this bond. The EUR1.5bn of amount offered might be digested by the market vs. BTP futures, arguably leading to a flattening of the Italian credit curve.