HALISTER1: AUCTION PREVIEW: Bobl Seen as Rich Outright, Cheap Versus Peers

AUCTION PREVIEW: Bobl Seen as Rich Outright, Cheap Versus Peers

(Bloomberg) -- Germany to sell 0% 10/2021 bonds for EU4b at 11:30am CET. While the bond is not eligible for ECB QE and outright yield levels aren’t seen as attractive, analysts note that it’s cheap in the sector.
  • Mizuho (Peter Chatwell, Antoine Bouvet)
    • This issue, 5Y sector has underperformed noticeably in micro-RV going into supply despite retaining value on repo
    • Auction to help ease pressure for borrowers of this bond as this is only its first reopening
    • However, the bond trades below –0.50% in yield terms, implying that even if the ECB were to cut rates the issue would remain ineligible for PSPP
  • Societe Generale (Marc-Henri Thoumin)
    • Bond is the fourth in the delivery basket for OEU6 contract; 10/2021 has cheapened slightly more than its neighbors of late, though remains limited in absolute terms relative to the curve
    • 5Y sector has underperformed shorter-dated bunds; the 2019/2021 spread has steepened ~3.5bps in z-spread since mid-August
    • Ultra low level of rates (5Y OBL at -0.52bps) is a consistent source of discouragement at auctions, especially in Germany
  • JPMorgan (Gianluca Salford)
    • 5Y benchmark was issued in late July at very cheap levels; benchmark discount relative to surrounding bunds of around 3.2bps
    • Bond has richened since then though 10/2021 still trading with a benchmark discount of ~2.2bps; still appears cheap in current QE environment
  • UniCredit (Luca Cazzulani)
    • Latest 5Y auction attracted weak demand with 10/2021 selling at -0.51%; 5Y has traded sideways since, now ~1bp richer
    • In RV, the issue is the cheapest bond in the 2018-2025 area on the German curve; looks attractive especially versus bonds in the 3Y-4Y area of the German and Dutch curves, such as Obl 10/2019, bund 09/2020 and DSL 07/2020, which look relatively rich versus neighbors
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Antoine Bouvet (Mizuho Financial Group Inc)
Peter Chatwell (Mizuho Financial Group Inc)
Gianluca Salford (JPMorgan Chase & Co)
Luca Cazzulani (UniCredit SpA)
Marc-Henri Thoumin (Societe Generale SA)

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