HALISTER1: AUCTION PREVIEW: 2055 Gilt Tapped in First Sale Since QE Resumed

AUCTION PREVIEW: 2055 Gilt Tapped in First Sale Since QE Resumed

(Bloomberg) -- U.K. to tap 4.25% 12/2055 for GBP1.25b at 11:30am CET, first supply since BOE QE resumed on Aug. 4.
  • Analysts see value in RV; auction expected to be well- received, though some concerns linger given low outright yield levels, large amount of duration
  • Citi (Saumesh Dutta)
    • Recent rally in gilt yields led by long-end; increased gilt purchases by BOE has turned net cash requirement for gilts to negative for upcoming months in 2016, except in November
    • In RV, the bond has cheapened on the domestic curve over past month as seen on 01/2045-12/2055-07/2065 fly; also evident evident in spread to 07/2052s
  • JPMorgan (Francis Diamond)
    • Expect strong demand at the auction based on RV considerations, QE reverse auction dynamic
    • Yesterday’s 15Y+ BOE buyback provided investors with opportunity to set up for the auction
    • In RV, the gilt looks cheap on the curve; 07/2052-12/2055-01/2060 butterfly sits at around cheapest levels since April 2012
    • Current valuations will further support investor demand at the auction
  • RBC (Peter Schaffrik)
    • Amount of risk being auctioned to the market is “a lot”, equivalent of approximately 55,160 gilt futures, around one third of the daily trading volume
    • Irrespective of RV considerations, gilt yields are extremely low and appear to have found a bottom; that should discourage investors going into the auction or cause some kind of concession
    • Continue to see gilts as expensive among core govt bonds which we consider rich as a group as well; in ASW terms, the bond appears as the richest in the vicinity
    • Auction likely to be well placed, recommend being wary of price moves around auction times which could be quite sizable
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Francis Diamond (JPMorgan Chase Bank NA)
Peter Schaffrik (RBC Europe Ltd)
Saumesh Dutta (Citigroup Inc)

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