AUCTION PREVIEW: BTPs Offer Value vs SPGBs as Demand for 5Y Seen
Source: BFW (Bloomberg First Word)
Tickers
UCG IM (UniCredit SpA)
People
Elia Lattuga (UniCredit SpA)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)
Peter Chatwell (Mizuho Financial Group Inc)
Rainer Guntermann (Commerzbank AG)
To de-activate this alert, click here
UUID: 7947283
(Bloomberg) -- Italy to sell 0.45% 06/2021 for EU1.5b-EU2b, 1.25% 12/2026 for EU4b-EU4.5b, as well as CCTeu 07/2023 for EU1.5b-EU2b at 11am CET.
Alert: HALISTER1- Analysts highlight value vs SPGBs, support from large upcoming coupons and redemptions; mixed views on new 10Y roll
- BBVA (Jaime Costero)
- 5Y has underperformed ~2bps vs peers, now looks cheap vs fitted curve; recommend buying the bond as 5s10s steepener boxed vs SPGB flattener
- New 10Y offers ~7bps pick-up in the grey market; current roll cheap as prior roll was ~4bps with higher yields and a steeper curve; curve interpolation puts fair value of spread ~5.2bps
- Mizuho (Peter Chatwell)
- 5Y likely to find demand from investors looking to switch out of Spain into Italy, possibly taking profit on the reverse
- New 10Y roll looks slightly rich, levels below 7bps can only be justified if a squeeze materializes
- This may be justified given pending redemption flow, evident excess demand for 10Y periphery as seen in last week’s 10Y Spanish syndication
- 10Y BTP/bund spreads look too wide relative to fundamentals, expectations of QE extension in September; tightening position looks good value in the event of current levels of market distress dissipating
- Commerzbank (Rainer Guntermann)
- BTPs are struggling to regain tightening momentum vs core, semi-core peers as banking, political concerns take their toll
- Recent widening vs 10Y SPGBs is striking, current on- the-run 10Y BTP at the widest vs Spain since its launch in March
- 10s30s BTP trades close to YTD lows, mirroring dynamics observable on Spanish curve; these valuations should generate sufficient interest as to limit spillovers into secondary markets
- Large coupon and redemption payments from Italy for a combined EU33b due next week may also have to be put to work
- UniCredit (Elia Lattuga)
- BTPs have underperformed peers over recent sessions; supply pressure added to tension on financials, which spilled over into BTPs
- In outright terms, BTPs have held up well, with 5Y and 10Y yields not too far off the YTD lows; 2s10s spread only 3bps from recent lows, while 5s10s has more room to flatten in the current environment
- 5Y looks cheap vs the 03/2021 and 03/03022 on the barbell, sits on top of the past 3-mo. range; also offers attractive pick-up vs SPGB at ~12bps
- New 10Y offers around 8bps-9bps pick-up vs old 10Y, which is fair value; 10Y sector looks more attractive on the curve after cheapening pressure ahead of supply
Source: BFW (Bloomberg First Word)
Tickers
UCG IM (UniCredit SpA)
People
Elia Lattuga (UniCredit SpA)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)
Peter Chatwell (Mizuho Financial Group Inc)
Rainer Guntermann (Commerzbank AG)
To de-activate this alert, click here
UUID: 7947283