HALISTER1: AUCTION PREVIEW: Constructive on OATs Sale Given Value vs OLOs

AUCTION PREVIEW: Constructive on OATs Sale Given Value vs OLOs

(Bloomberg) -- France to sell 0.25% 11/2026, 1.25% 05/2036 for EU7b-8b at 10:50am CET.
  • Analysts highlight concession seen vs Belgium, expect recent underperformance of OATs to be erased
  • Citi (Saumesh Dutta)
    • Good relative value in 10y as seen in 5s10s30s yield fly, which has cheapened since the bond was first sold; auction is also opportunity to fade widening vs Belgium
    • Overall remain constructive on OAT/bund spreads in near term; France’s cash-flow outlook is supportive in November and recent action by S&P to restore the stable outlook mitigates near-term downgrade concerns
  • Mizuho (Antoine Bouvet)
    • Demand at yesterday’s 10Y bund supply is an encouraging sign for today’s OAT sale; stabilization of core EGB yields seen in the last couple of days likely to help outright buyers
    • Expect the 10Y sale to be supported by short-covering demand judging from the specialness of the bond on repo
  • RBS (Giles Gale)
    • This supply is a large duration event for the market, may be around EU10m/bp; recommended being long 10y vs 5y and 15y, futures also look cheap; the passing of supply should help this come back into line
  • SocGen (Marc-Henri Thoumin)
    • 05/2036 has seen a decent concession vs equivalent OLO ahead of supply: 20y OAT/OLO spread has widened by ~6bp in yields, while equivalent 2031 and 2045 spreads have risen by just 3bps
    • Upcoming supply has led to market discrepancy that should fade after auctions; further, France has completed its annual issuance program, so regular auctions into year-end will probably be conducted for reduced sizes
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Saumesh Dutta (Citigroup Inc)
Antoine Bouvet (Mizuho Financial Group Inc)
Giles Gale (Royal Bank of Scotland Group PLC)
Marc-Henri Thoumin (Societe Generale SA)

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