Halister News

Economic Release Details: {GRIFPBUS Index ECOD} --JANA RANDOW

(Bloomberg) -- U.K. set to sell GBP2.5b 1.5% 07/2047 UKT at 10:30am London; equivalent to around 50k gilt futures. Analysts see the long end of the curve supported by a lack of summer supply, index extensions, coupon payments, while the bond itself is seen as cheap versus its peers. Citigroup (Saumesh Dutta)

• 30y gilt yields have backed up sharply over the past month; bid/cover ratios at 2 of the last 3 gilt auctions (including linkers) have been 3.1x; prior to this, the last time a gilt auction had a bid-to-cover ratio greater than 3x was back in Feb. 2010
• Gilt index is projected to extend by 0.41y at the end of July, the largest in 5 years; while FTSE indexes are more widely followed, this may be supportive at the margin
• Bond has cheapened on the 01/2045-07/2047-12/2049 fly ahead of the sale, and underperformed on the 10s30s50s curve since January

JPMorgan (strategists including Antoine Gaveau)

• 10s30s curve looks a couple of basis points too steep vs. the level of 10Y yields, which likely reflects some supply concession
• Belly of the 12/2046-07/2047/-12/2049 gilt fly is at its cheapest levels historically and has shown no correlation with the level of yields or the slope of the curve; see value in buying the belly of the fly

RBC (Vatsala Datta)

• 30y sector trades toward cheap end of the range on 10s30s50s fly; Gilts have cheapened cross-market, widening materially vs U.S. over the past month
  • On micro RV, the auction bond has been range-bound, but is still toward its cheaper end against immediate neighbors
• Main appeal for auction is to own the bond on the curve, heading into a large month-end extension, which typically results in long-dated forwards rallying into the end of the month; expect flattening pressure into month-end once today’s supply is out of the way

Santander (Adam Dent)

• Negative supply this quarter, with the pace of gross supply to drop markedly after this week; August has just three auctions scheduled, all sub-10y, potentially leaving the lowest gross supply DV01 since Dec. 2012
  • Monday’s coupons (GBP3.2b) and index extensions should all support this sale; expect 10s30s flattening given the favorable supply dynamics
• This bond looks fair for its maturity, but cheap on local flies and for its high duration

To contact the reporter on this story: Stephen Spratt in London at sspratt3@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Keith Jenkins