AUCTION PREVIEW: 10Y Gilt Is Rich Outright, RV Demand to Support
Source: BFW (Bloomberg First Word)
People
Adam Dent (Abbey Natl Treasury Services)
Oriane Parmentier (Royal Bank of Scotland Group PLC)
Vatsala Datta (RBC Europe Ltd)
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UUID: 7947283
(Bloomberg) -- U.K. to sell 1.5% 07/2026 for GBP2.25b at 11:30am CET, equivalent to ~20k gilt futures, GBP2.2m/bp in risk.
Alert: HALISTER1- Analysts say that, while 10-year gilts as expensive, and near-term risks from the BOE may curb outright demand, the bonds are attractive in RV terms
- NatWest Markets (Oriane Parmentier)
- Fundamentally, don’t see value in owning current yields given they are rich to fair value, the BOE are likely to stop QE, and there are hawkish risks around this week’s inflation report
- Cheapening in RV should mean the auction goes fine; 10- year has cheapened ~10bps on the 2022/2026/2030 fly
- RBC (Vatsala Datta)
- Outright yields on the bond have nudged ~4bps higher since its previous tap on Dec. 6, with the 10-year sector having underperformed, both on yield and asset swap curves; 5s10s30s yield and asset swap curves have now breached the levels seen in December
- However, the auction bond also continues to look cheap on micro RV against its neighbors, which should prove supportive of today’s auction
- Outright yields on the bond have nudged ~4bps higher since its previous tap on Dec. 6, with the 10-year sector having underperformed, both on yield and asset swap curves; 5s10s30s yield and asset swap curves have now breached the levels seen in December
- Santander (Adam Dent)
- Bond is unlikely to ever become CTD; gilts have returned to pre-referendum yield levels in the global rates sell- off
- Brexit challenges will push U.K. rates back down eventually, but don’t want to fight the bearish momentum at present
- 2026s have cheapened vs 2027s, though remain rich to fitted curves; RV appeal is limited
- Neutral on 10-year swap spreads outright, though seen them too tight vs the front-end (19s and 20s); continue to like 4s10s flatteners in ASW
- Bond is unlikely to ever become CTD; gilts have returned to pre-referendum yield levels in the global rates sell- off
Source: BFW (Bloomberg First Word)
People
Adam Dent (Abbey Natl Treasury Services)
Oriane Parmentier (Royal Bank of Scotland Group PLC)
Vatsala Datta (RBC Europe Ltd)
To de-activate this alert, click here
UUID: 7947283