Italian public debt: BTP coverage ratio exceeds 2 pre-Lehman levels. What’s happening?

Italian Public Debt: Analysis of the Latest Treasury Bonds Auctions

The demand for Italian public debt is closely linked to maturities and new issuances with their respective durations.
In the latest session of state bond auctions, an interesting technical phenomenon occurred: the bid-to-cover ratio, the amount requested versus the amount awarded, exceeded the value of 2, precisely reaching 2.2 – a level not seen for 3-year BTPs since 2007.
Generally, on average, the ratio ranges between 1.2 and 1.8.

Analyzing the trend of:

a) the amount awarded

b) the bid-to-cover ratio

it can be observed that from 2007 to the present, the ratio has not fallen below the value of 1.2 between requested and awarded amounts.
During the most critical moments for Italian public finances, the issued lots have often been above 4 billion, with a peak of almost 5 billion during the subprime crisis, the PIIGS crisis, and the Covid-19 pandemic.

Therefore, a combination of values above 4 billion and a bid-to-cover ratio of 1.2 or less implies stress on the Italian government bond market, as seen in 2009 and 2012.
A ratio below one would send a negative message to the market; instead, state bonds are not issued by skipping or suspending auctions, as it happened in 1992 during the lira crisis when Italy exited from the ERM following Soros’s speculative attack.

The yields make BTPs appealing and the demand remains strong: all crucial factors considering that we are at record levels for debt maturing in the next 12 months.
What are the indications? Monitoring the bid-to-cover ratio of 3-year BTPs to ensure it remains above 1.2 and keeping issuances below 4 billion with a peak of 5 billion.