ITALY T-BILL AUCTION RESULTS: 12-month BOT Results

Nothing in the way of meaningful headline flow to explain the recovery from lows in wider core global FI markets.

• It looks like cross-market cues driving outperformance in peripheral EGBs & OATs, with equities rallying, pulling wider core global FI off worst levels of the day.
• 10-Year OAT/Bunds now 2bp narrower on the session, with French paper outperforming EGB peers.

SFIH6 96.25/35/65/75 call condor paper paid 5.75 on 5K.

Gilt/Bunds slightly wider on the day, out to 180.5bp after failing to hold a break below 175bp last week.

• We noted that room for gilt outperformance (from a tactical perspective) had narrowed ahead of last week’s BoE decision but did flag some potential medium-term drivers of gilt outperformance vs. German paper (a dovish BoE outcome, various possible fiscal measures and a reduction in gilt issuance).
• UK paper hasn’t manged to benefit from the dovish hold that the Bank delivered as of yet, taking cues from wider sentiment in the times since.
• However, Goldman Sachs have recommended entering Gilt/Bund tighteners at 180bp (target 140bp, stop 205bp).
• They note they “think the MPC’s message was gilt supportive. Our economists now expect a cut in December, and three further cuts by the July meeting as disinflationary pressure gains strength. For the time being, focus will shift back to the Autumn budget, which we expect will add fiscal drag and reinforce disinflation, which is set to drive inflation differentiation vs. Europe”.
• Goldman also expect this recommendation to garner support from the supply picture, arguing that “gross gilt issuance needs are below those of Germany in 2026. We also note that the sharp increase in pickup of BoE repo facilities may strengthen the argument for slowing down QT”.