HALISTER1: AUCTION PREVIEW: Investors Wary on PGBs Given Ratings Concerns

AUCTION PREVIEW: Investors Wary on PGBs Given Ratings Concerns

(Bloomberg) -- Portugal to sell 4.95% 10/2023 and 4.1% 04/2037 for EU750m-EU1b at 11:30am CET.
  • Outright concession, PSPP demand in the issue should prove supportive, concerns linger over upcoming DBRS rating announcement
  • Mizuho (Peter Chatwell)
    • PGBs have been worst affected by ECB disappointment last week, sell off has been compounded by supply concession
    • 10Y yields are ~20bps higher than at last PGB auction in August; in RV, both issues are fairly illiquid off the run bonds trading close to fair value on fitted curve
  • ING (Benjamin Schroeder, Martin Van Vliet)
    • 10y PGBs yields have edged above 3.20%, upper end of the range since March, now close to 3.40%
    • Many investors may still be wary about PGBs as long as the uncertainty remains surrounding the DBRS rating verdict in October, given implications for PSPP- eligibility
  • BBVA (Jaime Costero)
    • After today’s sale, Portugal’s will have executed ~89% of target borrowing for 2016
    • 7y issue looks cheap on the curve, as seen on fly vs 06/2020 and 07/2026, which trades ~75bps, well above range average of ~63bps; spread vs 06/2019 is also at upper end of the range, which could support the auction
    • 20Y bond has outperformed on the curve recently; cross- market, the issue could be bought in the box as 20s30s steepener vs BTP 20s30s flattener
  • Commerzbank (Rainer Guntermann, David Schnautz)
    • 7Y issue was last increased in Nov. 2014, before QE; as a result PSPP buying may have been disproportionately active in this bond on the PGB curve, which should be beneficial for supply
    • Expect 7y to see majority of the allocation, in the region of EU0.65b
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Peter Chatwell (Mizuho Financial Group Inc)
Benjamin Schroeder (ING Groep NV)
David Schnautz (Commerzbank AG)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)
Martin Van Vliet (ING Groep NV)

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