Today's most anticipated economic headline - the sale of 3 and 10 Year Italian bond - auction has crossed, and judging by the selloff in the Italian secondary bond market (north of 7% now) and the drop in the EURUSD, now under 1.2900, it was a solid disappointment. Italy sold well below the targeted EUR 8.5 billion in 2014, 2018, 2021 and 2022 notes, with the key 10 Year 5% bonds pricing in line with the target EUR 2.5 billion, and optically successful at 6.98%, just inside the 7% critical level. The Bid To Cover was a weak 1.36, barely an improvement from the 1.34 from November 29, the day before the coordinated Fed bailout of Europe, when the same auction cost Italy 7.56%. And this was the good news: virtually all the other discrete auctions were far uglier than the headline indicated with demand weaker across the board.
In addition to the 10 Years, the Italian Tesoro sold:
- EUR 2.54 billion in 6% bonds maturing 2014, less than the target of EUR 3 billion, the yield was 5.62% compared to 7.89% previously, with the Bid To Cover worse at 1.36 compared to 1.50 on November 29.
- EUR 1.18 billion in 4.75% bonds maturing 2021, less than the target EUR 2 billion, the yield was 6.70%, compared to 5.77% previously, and a Bid To Cover just barely higher at 1.60 compared to 1.48 before.
- EUR 803 million in FRNs due 2018, less than the target EUR 1 billion, the yield was 7.42% far higher than the 5.590% from October 28, and a Bid To Cover of 1.97 lower than before.
All in all, when one ignores the purely optical "improvement" in the 10 Year pricing, since 12 bps wider, well north of 7%, this was a very weak auction, with demand missing across all tranches, and confirming once and for all that as we have been saying all along, the LTRO has been an epic failure.
And now - we look forward to the next European Summit, tentatively expected some time in the second week of January.