HALISTER1: AUCTION PREVIEW: Gilt Coupon, Break in Auction Cycle May Support

AUCTION PREVIEW: Gilt Coupon, Break in Auction Cycle May Support

(Bloomberg) -- U.K. to sell 3.75% 07/2052 for GBP1.25b at 11:30am CET.
  • Citi (Saumesh Dutta, Aman Bansal)
    • Gilt coupons provide supportive backdrop; GBP5.2b to be repaid on March 7; issue has cheapened on the curve, looks historically cheap vs neighboring issues
    • Bond has cheapened consistently vs swaps over past 12 months, looks set to continue as Brexit risk intensifies; see limited value in owning swap spreads at current levels
  • Santander (Adam Dent)
    • Smaller target size, last auction of fiscal year before 3-week break; long gilt yields have stabilized from record lows; long-term growth concerns likely to keep yields suppressed
    • Bond has seen some curve concession, now trades cheap vs neighbors; 40Y sector itself is slightly cheap on long end of curve; once supply pressure abates may reverse, outperform in coming months
    • ASW at long-end looks set to continue grinding wider, 2052s looks like reasonable choice
  • UBS (Nishay Patel)
    • Last bond sale of this fiscal year, coupons of ~GBP5b are due on March 7 with ~20% of these coming from 15Y+ bonds; 2052 is closer to rich end of 1Y range on barbell vs 2045s, 2060s
    • Long-end of gilt curve close to flattest level in a year, has outperformed swaps; ASW box close to steeper end of 1Y range
  • BNP (Parisha Saimbi)
    • Sharp cheapening in long-end gilt ASW may attract pension fund demand; 30Y gilts have underperformed on curve, appear cheap; though trades ~4bps rich in z- spread like most of the sector
    • Lack of conventional gilt supply until April may encourage some flattening beyond 10Y
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Aman Bansal (Citigroup Inc)
Saumesh Dutta (Citigroup Inc)
Adam Dent (Abbey Natl Treasury Services)
Nishay Patel (UBS Global Asset Management Japan Ltd)
Parisha Saimbi (BNP Paribas SA)

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