AUCTION PREVIEW: Outright Concession, Redemptions Support BTPs
(Bloomberg) -- Italy to sell EU1.5b-2b in 0.1% 2019 bonds, EU3.5b-4b in 0.65% 2023, EU0.75b-1.25b in 2.25% 2036, EU500m-750m in 3.25% 2046 at 11am CET.
- Expect auction to be supported by large redemptions payments due later this week; majority of analysts see new 7Y roll as expensive; however, outright concession seen as supportive
- UniCredit (Elia Lattuga)
- EU25b of redemptions, EU2.1b in coupons will support the auction
- After ECB meeting, 10Y BTPs fell to cheapest since June; 30Y sector has also suffered recently due to expectations of a new 50Y, which will keep 10s30s pressured in short term
- 3Y issue offers value vs core; the bond also looks interesting vs 2017 BTPs
- Demand for BTPs in the belly has been strong recently, especially for 5Y but with spillovers to the 7Y; recommend selling 03/2023, 05/2023 and 08/2023 into new 7Y
- Bonds in the 20Y have richened on the curve, with the 09/2036 trading close to its richest level in three months vs 03/2032 and 09/2046
- JPMorgan (Aditya Chordia)
- 3Y has outperformed recently, trades at small benchmark premium vs surrounding bonds; see better value in Spain
- 10/2023 bond sits in the cheap part of the curve, expect the new issue to trade at a premium relative to surrounding bonds
- Low coupon 20Y is trading with no benchmark premium on the interpolated BTP curve but expect interest in the bond to resume in case of a selloff that would take it close to par
- Hold longs in BTP 09/2036 vs combination of 08/2034 and 02/2037
- Off-the-run BTP 30Y trades broadly fair value both on the BTP curve, and vs SPGBs
- HSBC (Chris Attfield)
- Fair value for new bond is at ~8bps higher vs the current benchmark (BTP 0.95 03/2023), but preliminary pricing suggests a roll of ~6-6.5bps; see richness on the roll boding well for the auction, despite relatively large size
- Potential re-investment flows from EU16b redemption on Sept. 15 should also be supportive
- Referendum later this year poses large event risk, but polling at this stage isn’t meaningful, with a large number of undecided voters
- Forecast 10Y BTP yields close to their current level at 1.3% by year-end, with a spread of 25bps over Spain
- SocGen (Marc-Henri Thoumin)
- 3Y has seen marginal concession vs other BTPs in general, though expect limited interest in this bond; still maintain a preference to hold SPGBs vs BTP
- New 7Y issue offers a much smaller pickup vs current on- the-run, than last 7Y launch in March; however, 4s7s looks steep in comparison to SPGB, expect this to convergence after the auction
- Long-dated BTPs both offer good pickup vs shorter-dated bonds, which may help demand
- Mizuho (Peter Chatwell)
- New 7Y roll was ~6.8bps to the 03/2023, which looks very rich in RV terms, with fair value at ~10bps
- Given outright concession of EGBs since ECB meeting, expect demand to be solid on this line
- Continue to see 09/2046 as very cheap on the curve, favor owning the bond in a 15s30s box vs France
- BBVA (Jaime Costero)
- Recommend a neutral/defensive position on BTPs given possible DBRS revision on Friday as downgrade could prompt sharp increases in the haircuts applied by the ECB
- Expect support from ~EU25b in redemptions coming from 5Y BTP, BTPei on Sept. 25
- Despite concession, 3Y issue looks rich vs fitted curve
- Roll on new 7y ~6.6bps vs current benchmark, consistent with the previous roll in March when 5s10s was slightly steeper
- 20Y sector to benefit from richness on repo, concession, while 30Y has cheapened significantly vs peers
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers UCG IM (UniCredit SpA)
People Aditya Chordia (JPMorgan Chase & Co)
Chris Attfield (HSBC Securities Inc)
Elia Lattuga (UniCredit SpA)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)
Marc-Henri Thoumin (Societe Generale SA)
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