HALISTER1: AUCTION PREVIEW: 10Y BTP Cheap on Curve, 5Y Offers Protection

AUCTION PREVIEW: 10Y BTP Cheap on Curve, 5Y Offers Protection

(Bloomberg) -- Italy to sell 0.35% 11/2021 for EU2.25-2.75b, 1.25% 12/2026 for EU2-2.5b, as well as 7Y CCTeu for EU2.75b-3.25b at 11am CET.
  • Italy 10y yield higher by ~3bps at 1.57%, 2bps wider vs Germany as concession builds ahead of auction; analysts see 10y sector as cheap on curve
  • Mizuho (Antoine Bouvet)
    • Supply has been partly behind BTP underperformance over past few days, though greater beta of Italian bonds in selloffs makes this auction more difficult to absorb
    • Given the volatility, see 5Y sector as preferred by investors wary of further upside in yields; stabilization of spreads ahead of auction would support demand
    • 10y looks cheap in various macro trades such as 5s10s15s and the BTP/SPGB 5s10s, though this is largely a reflection of the issuer underperforming core and Spain, respectively
  • Citi (Aman Bansal)
    • In RV, both 2s10s30s and 12/2024-12/2026-09/2028 fly look cheap
    • See 12/2026-03/2032 steepener as attractive
  • BBVA (Jaime Costero)
    • 5y has traded in line with peers, showing no clear sign of concession ahead of auction
    • 10y issue has richened vs peers since last auction; however, pricing on repo looks normal and trades broadly in line with general collateral rates
    • Cross-market, favor owning 10y BTPs vs SPGBs, and against bunds
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Aman Bansal (Citigroup Inc)
Antoine Bouvet (Mizuho Financial Group Inc)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)

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