AUCTION PREVIEW: Concession Supports Portugal Sale Ahead of ECB
(Bloomberg) -- Portugal to sell 3.85% 04/2021, 2.875% 07/2026 bonds for EU1b-1.25b at 11:30am CET.
- Nomura (Pooja Kumra)
- Bond has cheapened on 25s26s30s fly by ~8bps since end- Feb., mostly due to steepening of 25s26s curve; switch from 2025s to 2026s now attractive, offers yield pick-up of 17bps
- Off-the-run 04/2021 has cheapened ~5bps on 20s21s22s fly since end-Feb.
- PGBs have been volatile since elections in Oct., though have recovered in recent sessions; Portugal continues to be key beneficiary of ECB’s QE program
- Favor PGB longs vs SPGBs, given Portugal’s political, macroeconomic situation relative to Spain; spread environment supportive ahead of ECB meeting Thursday
- Societe Generale (Marc-Henri Thoumin)
- 5Y PGB has seen a bout of pre-auction cheapening, 2s5s now looks steep vs SPGBs; “generous” carry of 17bps over 3 months
- Momentum ahead of the ECB is supportive; mindful of uncertain medium-term outlook
- Expect less demand for PGB 07/2026 as it has remained at rich levels relative to the curve; longer maturities more exposed to reversal of ongoing risk appetite
- Mizuho (Antoine Bouvet)
- As with many off-the-runs, 04/2021 is cheap on the Portuguese fitted curve; bond also trades special on repo, suggesting a short base among dealers, which could prove supportive for the tap
- 10Y is expensive on the curve, cheaper in repo; ECB event risk may have dampening effect on demand for less liquid peripheral bonds, which partly explains widening of PGB spreads heading into supply
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers 2539Z GR (European Central Bank)
1174Z PL (Portuguese Republic)
People Pooja Kumra (Nomura Holdings Inc)
Antoine Bouvet (Mizuho Financial Group Inc)
Marc-Henri Thoumin (Societe Generale SA)
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