AUCTION PREVIEW: ECB Expectations to Support 2Y Schatz Supply
(Bloomberg) -- Germany to sell new 0% 03/2018s for EU5b at 11:30am CET. Analysts highlight 2Y outright yields levels that are close to record lows, though suggest market expectations for the ECB and small curve concession should support auction.
- German 2Y generic yield at -0.50%, after hitting record-low -0.525% yday
- ING (Martin van Vliet)
- Growing expectations ECB will deliver more rate cuts has Eonia for March trading ~13bps through 1-mo. Eonia
- Further cuts may come with adoption of tiered rate system to offset negative impact on bank profitability
- Against this backdrop, expect new 2Y Schatz to proceed smoothly; currently trades at ~1bp concession to the curve
- Barclays (Khrishnamoorthy Sooben)
- Bond trades ~1bp cheap vs Eonia on the roll, looks to be reasonable value
- 2Y sector has rallied in outright terms since ECB’s Dec. meeting, now trades around record lows
- Germany 2Y also has seen some underperformance in cross market; has cheapened ~4bps vs Holland and ~5bps vs Austria, now close to 3-mo. tights
- Mizuho (Peter Chatwell)
- Initial roll est. +0.5bp and +1.5bp, now trades around middle of this range in grey market; similar to where prior rolls have traded
- 2Y yields continue to fall, supported by expectations of more cuts by the ECB
- Market should price some uncertainty as to what next easing tool will be, given ECB concern that further negative rates may hurt transmission mechanism
- Commerzbank (Rainer Guntermann)
- Backdrop is challenging given 2Y yields near record low below -52bps; auction stands good chance of being technically covered, due to the flight-to-quality bid
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers 2539Z GR (European Central Bank)
People Khrishnamoorthy Sooben (Barclays PLC)
Martin Van Vliet (ING Groep NV)
Peter Chatwell (Mizuho Financial Group Inc)
Rainer Guntermann (Commerzbank AG)
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