HALISTER1: AUCTION PREVIEW: Covering Demand, Smaller Size to Support SPGBs

AUCTION PREVIEW: Covering Demand, Smaller Size to Support SPGBs

(Bloomberg) -- Spain to sell 5.9% 07/2026, 5.75% 07/2032, 4.7% 07/2041 for EU2b-3b at 10:30am CET. Analysts optimistic on the sale given expectations for short-covering demand, reduced sizes.
  • Mizuho (Antoine Bouvet)
    • Auction bonds surprised the markets, sizes reduced due to longer average duration
    • 10Y has richened since the auction announcement; because of this outperformance, bond should see good demand
    • Neutral on both longer issues, 16Y trades expensive on the fitted curve, without benefiting from low cash price which explains neighboring issues
    • 25Y bonds trades expensive in repo, have richened slightly into auction, should benefit from short- covering demand
  • Commerzbank (David Schnautz)
    • Risk of ultra-long peripheral supply indigestion remote, given low target range of EU2b-3b, Tesoro’s selection of bonds
    • All three auction bonds are off-the-runs, should benefit from special demand; SPGB 07/2026 tap is the first-ever since the start of QE, expect a smooth sale
  • SocGen (Marc-Henri Thoumin)
    • 10Y offers good pickup vs shorter maturities; 7s10s SPGB spread looks steep compared to BTPs, expect some convergence after the auction
    • 07/2032 looks rich relative to the curve, expect limited interest for this bond
    • 10/2044 has seen modest concession ahead of this tap, 10s30s has steepened a tad, potential for reversal post- auction
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Antoine Bouvet (Mizuho Financial Group Inc)
David Schnautz (Commerzbank AG)
Marc-Henri Thoumin (Societe Generale SA)

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