HALISTER1: AUCTION PREVIEW: 10Y DSL Not Swapped, Offers Value vs Semi-Core

AUCTION PREVIEW: 10Y DSL Not Swapped, Offers Value vs Semi-Core

(Bloomberg) -- Netherlands to sell 10Y 0.5% 07/2026 for EU1.5-2.5b at 11am CET. Auction not expected to swap. Analysts see value given the outlook for the ECB; seen as attractive vs semi-core.
  • ING (Benjamin Schroeder)
    • DSLs have already recovered from recent cheapening vs core peers; 10Y spread vs bunds has tightened to ~16bps from ~19bps late last week, now at lower end of year-to- date range
    • Scarcity growing problem in DSLs, ~50% of 2-31Y bonds trade below depo rate
    • 10Y DSLs still look attractive on the curve, as seen in 5s10s ASW box, and considering where bund curve has traded
    • Great unknown is when ECB will decide to change modalities of PSPP program; any relief move would be more pronounced in bunds
  • Rabobank (Richard McGuire)
    • Global haven demand post Brexit has bull-flattened curve, ongoing fallout tilts odds toward further policy support from ECB
    • DSLs now trade below -40bps out to the 7Y; ECB will need to skew QE efforts toward longer-dated DSLs; supports flattening theme, highlights this bond’s appeal in curve extension trades
    • In RV, issue offers value vs RAGBs and OATs
    • Auction not expected to swap as DSTA strives to achieve average maturity target for outstanding portfolio of 5.5Y at the end of 2016
  • ABN Amro (Kim Liu)
    • Dutch issue will compete for investor demand with other auctions in 10y sector this week
    • Following this sale, year-to-date funding will increase to over 60% of target
    • Since launch, 10y bond has outperformed its German equivalent, but looks attractive vs comparable semi-core bonds and in ASW
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

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

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