The sovereign auctions €2bn-€2.5bn of June 2025s on Thursday, along with €1.5bn-€2bn of May 2020s and €1.25bn-€1.75bn of June 2022 floating rate notes.
Italy’s borrowing costs have risen at every monthly 10 year auction since hitting a euro era low of 1.34% on March 30. At the most recent auction, on June 30, it hit 2.35% — its highest level since October — but the sovereign’s 10 year yields have been around the 1.90% mark in secondaries all this week.
Thursday’s auction will also be supported by redemption and coupon flow from Italy, along with potentially reinvested cash from some Spanish government bond redemptions and coupon payments, said UniCredit analysts in a note.
“The auction takes place in a constructive environment: Grexit has been averted; this week and the next there will be plenty of redemptions and coupons from Italy and Spain; and in August supply pressure will be quite mild, as Italy has cancelled the mid-month BTP auction and we expect Spain to do the same,” the analysts wrote.
“This should support [the] periphery in August.”
On Wednesday, Italy sold its maximum €6.5bn target of six month bills. Investors received an average yield 0.7bp — a fall of 5.3bp from the last sale of the tenor on June 26 and just a fraction above the euro era low of 0% set on April 28.
