The moment of truth seems to get closer and closer for Italian government bonds.

Today’s auction results don’t leave room for much optimism.

True, the government has been able to place about €3 billions of the new 5 years BTP, plus a total of €2 billions of the old 7 and 10 years.

Looking at the bid-to-cover, just over 1,20, of the main auction though (the 5 years), it appears clear that demand has been quite limited. Even worse, the yield of the assignment price has jumped from yesterday’s level of 5,15% to 5,60%, a huge gap for government bonds.

On balance, the auction’s results are quite worrying and disappointing for the Italian Treasury. All evidence suggests that the investor’s base for Italian government  Bonds is shrinking rapidly, an issue potentially critical given the size of the debt and the need to access the market almost every week.

After having avoided to issue bonds in August, September redemptions are about €55 billions, with about €75 billions more between October and December.

The Ministry of Finance and Treasury’s officials have been very quiet today (a part from the ridiculous rumor about China’s Sovereign Fund sustaining the BTP market), avoiding to comment the auction’s results. This silence could well be a sign of nervousness, as options seem to become fewer and fewer.

Of this dangerous situation, Italian politicians don’t seem to be (or don’t want to be) completely aware, as all the attention is currently concentrated on the approval of the 2012-2014 Budget’s amendments (the “manovra di agosto”) by the lower house. The financial markets consider the approval a result already acquired, and are now focusing on other issues; mainly the lack of economic growth.

As usual politics seem to be running in the right direction but at a much too low pace. Those who expect an easing of the tensions after the (almost certain) approval of the 2012-2014 Budget’s amendments might well be disappointed.