HALISTER1: AUCTION PREVIEW: 10Y DSL Attractive on Curve vs Bunds, OATs

AUCTION PREVIEW: 10Y DSL Attractive on Curve vs Bunds, OATs

(Bloomberg) -- Netherlands to sell 0.75% 07/2027 for EU4b-6b via Dutch Direct Auction, books open at 10am CET.
  • Initial spread guidance from the reference bond (DBR 0.25% 02/2027) was set at +33 to +36bps
  • Attractive to own the bonds as 5s10s flatteners either vs Germany or France, say analysts
  • Rabobank (Richard McGuire)
    • Spread guidance over the reference bond will come in around 33bp
    • Hurdle for populist party, PVV, entering the next government is high given all of the other major political parties have made a commitment to not work with them
      • Renewed concern over the populist threat to EU cohesion could paradoxically prove supportive for Dutch bonds given their core status, and negative for OATs given the read across in terms of the risk of a Le Pen victory
      • Auction offers opportunity to take advantage of Euro zone electoral risk by either entering a long position vs France or a 5s10s Dutch flattener
  • ABN Amro (Kim Liu)
    • Dutch bonds have withstood election risks and stand out compared to OATs and BTPs, however, the upcoming Dutch general elections still pose a tail risk for DSLs
    • Using several metrics, estimate fair value at +33.5bps over the DBR 02/2027
      • This spread looks very attractive, as a +30bps launched would be the highest 10y launch spread since 2014
    • On the curve, 10y benchmark offers value, with both 5s10s and 10s30s favorable vs Germany bonds; Dutch 5s10s30s fly also looks very compelling
    • Compared to neighboring Dutch bonds, the DSL July 2021 and DSL July 2023 look expensive in ASW spreads; hardly any value in the new roll over the DSL July 2026
  • ING (Benjamin Schroeder)
    • Estimate fair value at +14bp over the DSL 07/2026, implying a spread of around 29bps over the reference bund
    • 10yr Netherlands trading near the cheapest levels vs Germany and on ASW in 10 months
    • Bonds look slightly tad cheap versus Austria by historical standards ahead of the RAGB 10/26 tap today; RFGB/DSL spread is trading at the higher end of its historic range, as an RFGB syndication is also on the cards
    • Another opportunity to participate in auction is to box 5s10s flatteners Germany, bearing in mind the prospect of the 5y DSL tap next month
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Benjamin Schroeder (ING Groep NV)
Kim Liu (ABN AMRO Group NV)
Richard McGuire (Rabobank International)

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