Italy taps BTP Short Term Jan26, attractive after the recent ECB rate cut depricing

On Tuesday , Italy will tap BTP Short Term 3.2% Jan 26, BTP Dec24 and BTPei 0.1% May33 for a total of up to EUR 6bn. The upcoming auction will be supported by EUR 14bn of redemptions (BTP Short Term 1.75% May24). BTP Short Term Jan26 (EUR 2.25-2.75 bn expected) is currently trading at 3.56% (last tap was at 3.42%) , its highest level ever ( chart 1 ). The bond looks more attractive in absolute terms than in ASW (currently at 4 bp) as market is currently pricing in 58bp of cuts this, less than the 100 bp we expect . Furthermore , if market expectations on the ECB turning more dovish this would likely lead to limited tighter spreads vs. Schatz and Swap although current spreads are already close to the ir tightest level of their six-month range. The bond’s c arry & r olldown is currently at -12 bp (vs -16 bp for 2Y Bono) . We find the bond relatively cheap vs. BTP 0.5% Jan26 with a pickup of 5 bp ( chart 2 ) in line with what we have seen on average over the past month s . The bond is also relatively cheap vs. BTPS 0% Apr 26 with a pickup of 8bp.