HALISTER1: AUCTION PREVIEW: Expect Demand on Curve, in ASW for 30Y Gilt

AUCTION PREVIEW: Expect Demand on Curve, in ASW for 30Y Gilt

(Bloomberg) -- U.K. to tap 3.5% 01/2045 for GBP1.5b at 11:30am CET. Analysts suggest outright yields not attractive, though see value in ASW and on the curve.
  • BNP (Parisha Saimbi, Shahid Ladha)
    • Recent long-end auctions have been difficult to digest, smaller size at GBP1.5b should be supportive
    • 30Y gilts yields at very low levels amid latest risk- off; bond offers strong value vs swaps, yielding 60-70bps over, 30Y gilt ASW close to cheapest levels ever
    • 30Y sector looks cheap vs 10Y, 50Y; in RV looks ~4bps cheap to fitted ASW curve as is most of 25Y-30Y sector
  • SocGen (Marc-Henri Thoumin)
    • Highest yielding gilt on curve, good ASW pick-up, recent cheapening vs peers, gilt coming toward end of tapping cycle, all seen as supportive for auction
    • Low level of outright yields presents largest outright risk, last auction sold close to current levels in April came with larger 0.3bp tail
    • Expect decent ASW demand at auction, though see 30Y gilts as likely to remain cheap on ASW given directional spread moves, upcoming long-end supply
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Marc-Henri Thoumin (Societe Generale SA)
Parisha Saimbi (BNP Paribas SA)
Shahid Ladha (BNP Paribas SA)

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