HALISTER1: AUCTION PREVIEW: 2036 Gilt Linker Seen Offering Value in ASW

AUCTION PREVIEW: 2036 Gilt Linker Seen Offering Value in ASW

(Bloomberg) -- U.K. to sell 0.125% I/L 11/2036 bonds for GBP1b at 11:30am CET. Analysts see value in owning on ASW, vs I/L 2037 bond.
  • BNP (Shahid Ladha)
    • Little value in real yields, prefer shorter-maturity breakevens; longer-dated UKT(i) ASWs offer strong structural value at current lvls
    • 20Y has cheapened ~15bps on 10s20s30s UKTi real-yield fly in 2016, sector looks cheapest on the nominal curve
    • End of fiscal year, extremely large deficits, no more conventional or linker supply until FY 2016/17 -- these factors bode well for demand
  • SocGen (Marc-Henri Thoumin)
    • Pricing of this issue relatively straightforward given real-yield curve only marginally inverted post 12Y; real yields on long-end linkers within a 3bps-4bps range
    • RPI curve always relatively humped in the 20Y sector as many defined benefit pension-fund liabilities peak around that point
    • Recent relative underperformance of this area of the curve in swaps may lead to ASW demand; auction relatively small, should be well covered
  • Santander (Adam Dent)
    • Bond will have similar duration to the overall gilt linker portfolio; current 1.5bps spread vs similar (but slightly rich) I/L 2037s looks attractive
    • 20Y linkers not attractive outright, real yields close to all-time lows
    • Real-yield curve is flat, stable around 10s30s; little sign of concession
    • Breakevens have fallen in recent months, 20Y sector is relatively rich on the breakeven curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Adam Dent (Abbey Natl Treasury Services)
Marc-Henri Thoumin (Societe Generale SA)
Shahid Ladha (BNP Paribas SA)

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