HALISTER1: AUCTION PREVIEW: Analysts Bullish on German 2044 Bond Sale

AUCTION PREVIEW: Analysts Bullish on German 2044 Bond Sale

(Bloomberg) -- Germany to sell 2.5% 07/2044 for EU1b at 11:30am CET.
  • Analysts optimistic on 30Y sale given recent selloff, specialness in repo, prospect of ongoing QE buying and limited supply for remainder of the year
  • ING (Benjamin Schroeder, Martin Van Vliet)
    • Following the selloff after the latest ECB meeting, valuation levels are now less stretched; absolute yield level is highest since June; bond offers 3bps pickup vs 07/2042, top-end of 2y range
    • Recent re-tightening in ASW may prove demand supportive, as could the bond’s repo specialness
    • Potential removal of depo-rate floor for PSPP purchases in Dec. still looms large; however, may allow for some temporary scarcity-induced richening up to the meeting
  • Mizuho (Antoine Bouvet)
    • This may be last tap of this off-the-run issue, as new benchmark likely next year
    • Bond is marginally cheap to 08/2046 but expect decent demand because of its specialness on repo
    • Outright concession plus repo richness make this attractive for macro longs, especially given the probable lack of subsequent supply
  • Commerzbank (Rainer Guntermann, David Schnautz)
    • Previous two taps of this bond in Feb., May were both technically covered, which is already a good omen for the auction
    • Given ECB didn’t tweak QE parameters last week, PSPP buying is skewed toward longer-dated maturities on German curve, despite the recent selloff making more bonds in shorter maturities eligible
    • Prospect of ongoing QE buying, lack of supply at least until year-end in this bond should more than outweigh last week’s poor 10y tap
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Benjamin Schroeder (ING Groep NV)
Martin Van Vliet (ING Groep NV)
Antoine Bouvet (Mizuho Financial Group Inc)
David Schnautz (Commerzbank AG)
Rainer Guntermann (Commerzbank AG)

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