HALISTER1: AUCTION PREVIEW: Analysts Expect Strong Demand for 10Y Gilt

AUCTION PREVIEW: Analysts Expect Strong Demand for 10Y Gilt

(Bloomberg) -- U.K. to sell 1.5% 07/2026 gilt for GBP2.5b at 11:30am CET; analysts expect strong demand given large cash-flows, BOE operations, large index event, small concession.
  • NOTE: GBP5.1b of coupons and GBP18.1b of redemptions will be eligible for reinvestment this week
  • Citi (Saumesh Dutta)
    • Heavy cash flows and upcoming index events may benefit the auctions, FTSE UK Gilt All Stock is projected to extend by 0.28 yrs due to redemptions on Sept. 7
    • Issue has started to cheapen vs surrounding issues on the 09/2024-07/2026-12/2027, showing some concession
    • Low level of outright yields is not denting auction demand, largely thanks to the BOE buyback; auction likely to be well supported despite no clear signs of value
  • JPMorgan (Francis Diamond)
    • Expect strong demand at auction given ongoing QE program, upcoming index events, increase in auction participation observed over the past few months
    • 10Y sector looks cheap ~3.3bps cheap on 2s10s30s vs level of 10Y rates
  • RBC (Peter Schaffrik)
    • Bond has cheapened marginally vs neighbors both on yield and ASW basis, though has performed well of late, indicating possible end-user demand; sector has shown broader concession on the 5s10s30s curve
    • Relative cheapening, coupon and redemption cash flow due tomorrow, as well as the ongoing BOE reverse auctions, should all be supportive of the auction today
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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