This message from Bloomie/Mackel ahead of the Italian auctions at 10am today?
So we have had a warning about the US debt situation, suspected BoJ intervention and this is all before the main event this morning. All eyes will be on the Italian bond auction at 10am BST. We will be looking at the bid to cover. If it is uncovered, then goodnight Vienna…and Athens and Rome too. Now the ECB does not bid directly in primary auctions, as that would be monetising the debt. What the ECB did with the Portuguese auction was that they bid the day before in the secondary market and this ensured a good auction. However, Italy is too big for this. A better tactic is to strong arm the Italian banks to bid, bid and bid again, as their fortunes are already tied into Italian debt. Italy owns 56% of its own bond market. The average bid to cover recently has been 1.3X. In our view its inconceivable this would be uncovered so post 10am the EUR could pop up once again. Bloom/Mackel
B/C of last few Italian auctions:
BTPS4.75 9/21 1.33x (28 June)
BTPS3 4/14 1.39x (28 June)
BTPS3.75 4/16 1.28x (14 June)
BTPS3 4/14 1.34x (30 May)
HSBC Global Research