Tomorrow's auction will see the Italian Treasury offer EUR2.75-3.25bn of the 5Y benchmark, EUR3.25-3.75bn of the new 10Y benchmark, as well as EUR1.00-1.50bn of an off-the-run 10Y bond and EUR1.00-1.50bn of the CCTeu 8Y. Assuming the maximum allocation is achieved, this would take Italy’s issuance to EUR254bn, or c.79.3% of its total funding needs for FY2023 (EUR320bn).
Tactical ideas for auctioned bonds
- We see value in a long position in BTP 3.80% August 2028 vs. short BTP 2.65% December 2027 and BTP 3.85% December 2029
- We also see value in a long position in CCTeu October 2031 vs. short CCTeu October 2028
Background on the references auctioned
- BTP 3.80% August 2028. After this tap, the outstanding amount might be in the EUR17.5bn area, suggesting the possibility that this auction will be the last for this reference. The Italian 5Y area has been the Italian tenor that has underperformed the most vs. other sovereign curves. We like BTP August 2028 vs. 2027 and 2029 BTPs with the twin rationale of taking advantage of the recent 5Y Italian concession and the on-the-run premium (c.5bp) that is still present.
- New BTP 4.20% March 2034 & BTP 4.35% November 2033. The Italian 10Y area was the part of the curve up to 20Y that widened less vs. other sovereign curves. This not-so-negative performance was seen in the weeks before the launch of the new benchmark (widely expected by the market). Regarding performance, the BTP November 2033 is now offering a pick-up of 3.5bp vs. surrounding bonds, while the new benchmark BTP March 2034 seems c.5.5-6bp cheaper than our estimate of FV. We recall that the decision by the Italian Treasury to offer this new bond for a maximum amount of EUR3.75bn meant it was impossible for this bond to be considered in the basket of the deliverable bonds for the IK-December futures contract.
- CCTeu October 2031. In the past month, the CCTs-eu showed an overall stable performance vs. BTP in ASW, with the average pick-up in the 2028-30 sector broadly unchanged at c.22bp. On the other hand, the reference is showing some pre-auction concession (c.3bp). In this sense we suggest looking at the current concession offered by October 2031, buying it vs. CCTeu October 2028 (the other on-the-run CCT-eu) at a spread level of c.15bp (close to the highest level since June).