A strong auction performance for Italy this morning demonstrates banks' willingness to use cheap financing and low capital requirements to jump in on a quick carry trade and have eligible collateral for their liquidity requirements.
NYT: The Italian Treasury allotted all of the €8.5 billion of the 12-month bills it had targeted for sale, with its yields falling by half or more.
The 1-year Italian bill rate came off sharply. The current yield is 2.7% after peaking back in October at around 8.5%.
|Italy 1-year bill rate (Bloomberg)|
|Italian sovereign yield curve, now and a month ago (Bloomberg)|