AUCTION PREVIEW: OAT Supply May Require Further Concession
(Bloomberg) -- France due to sell 0.25% 11/2026, 1.25% 05/2036, 3.25% 05/2045, 1.75% 05/2066 for EU8.5-9.5b at 10:50am CET; equivalent in risk terms to ~EU16.5m/01 or 112k bund futures.
- Analysts look for supply to be skewed toward the long-end, see scope for some additional concession given large duration on offer
- Mizuho (Antoine Bouvet, Peter Chatwell)
- This supply is heavily skewed toward the long end, could weigh some more on market direction going into bidding deadline
- Long end of France’s curve has been under steepening pressure this week from the prospect of this auction as well as long end supply from Ireland this week, Netherlands and Austria next week
- Interesting yield levels are on offer for outright investors, with 05/2036 close to 1.5%, 05/2045 close to 1.75%
- Tight repo levels suggest the 05/2036 issue should be most successful
- ING (Benjamin Schroeder)
- Yesterday saw some concession built, especially in the 05/2036 as France recently also announced its inaugural green bond in the 15y-25y area
- Ultra-long sector has come under pressure with the 30s50s ASW curve having steepened ~5bps from mid- December lows
- OAT/bund 10y spread widened 2bps to 53bps yesterday, moving closer to 2-year high of 55bps/56bps seen at end of November
- This may partly reflect increased investor concern about French political risk after Le Pen’s comment that she wants to leave the euro, re-denominate French government debt
- Commerzbank (Rainer Guntermann)
- France typically skews first auction of the year toward the ultra-long end, the target sizes are bold
- Price concessions have been pronounced accordingly, particularly for the 30y benchmark with 10s30s OATs and spread vs 30y bunds each widening to multi-year highs
- Citi (Aman Bansal)
- 05/2036 issue looks cheap on the 10s20s30s fly, while the 05/2045 bond offers value on the 20s30s40s fly
- See the 50y issue as attractive vs RAGBs
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Aman Bansal (Citigroup Inc)
Antoine Bouvet (Mizuho Financial Group Inc)
Benjamin Schroeder (ING Groep NV)
Peter Chatwell (Mizuho Financial Group Inc)
Rainer Guntermann (Commerzbank AG)
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