AUCTION PREVIEW: Optimistic on Germany’s 10y Bund Auction
(Bloomberg) -- Germany to sell new 10y bund for EU5b at 11:30am CET. Analysts are optimistic on the sale, citing value on the 2s10s30s fly, against swaps and versus OATs.
- JPMorgan (Gianluca Salford)
- Expect the new 02/2027 to be issued at a curve-adjusted discount of 1-1.5bp vs current benchmark, equivalent to a yield pick-up of around 6bps
- Bond to outperform modestly after issuance, as has been the
case in the past six 10-year Bund rolls
- Citigroup (Saumesh Dutta)
- Fair value vield spread vs current 10y is +8bps; view the ASW cheapening in early 2017 as a good entry point for wideners, given expectations for general collateral to trend to richer levels in 2017
- New 10y attractive vs OATs; presidential election in April/May and the rising headline risk, don’t rule out 10yr OAT spreads to Bunds moving to 60bp/70bp going into the event
- ING (Martin van Vliet)
- If the specialness seen in the old 10y benchmark is any guide, the new benchmark will likely benefit from rich repo funding levels, which should ensure solid demand at today’s auction
- Commerzbank (Michael Leister)
- Outright valuations remain unconvincing, but ongoing tightness of German general collateral and higher outright yields should ensure decent auction metrics
- Find value in the bond on the 2s10s30s fly, with the ongoing duration-intensive issuance and the likely shorter duration of PSPP purchases leaving the ultra- long relatively exposed
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Gianluca Salford (JPMorgan Chase & Co)
Martin Van Vliet (ING Groep NV)
Michael Leister (Commerzbank AG)
Saumesh Dutta (Citigroup Inc)
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