HALISTER1: AUCTION PREVIEW: New 5Y Bobl Seen Yielding Below Depo Rate

AUCTION PREVIEW: New 5Y Bobl Seen Yielding Below Depo Rate

(Bloomberg) -- Germany to sell EU5b 10/2021 at 11:30am CET; analysts highlight this is the first bobl sale yielding below depo rate, hence not eligible for QE.
  • Speculation of ECB policy PSPP parameter changes may offer some support, fair value in RV though mixed views on the sector vs curve
  • Citi (Saumesh Dutta)
    • First bobl auction at below depo rate levels; in RV, the 5Y sector looks cheap vs fitted curve, but looks rich on 2s5s10s; cross-market, has underperformed vs semi-core bonds over the past month
  • Mizuho (Antoine Bouvet)
    • No 5Y supply for past 1 1/2 months, compared with the usual 1-month break between reopenings, should help build up demand for the auction
    • The sale will need to compete for demand with tomorrow’s 5Y FRTR
    • In RV, fair value for roll is around +4bps in yield terms, which is consistent with grey-market pricing yesterday
  • Commerzbank (David Schnautz)
    • New bobl trades at a spread of ~3.5bps vs 04/2021, leaves new bond outright yield around –53bp; not attractive, well below depo rate, not eligible for QE
    • ECB’s PSPP rulebook may well be re-written, may address scarcity issues by relaxing depo-rate restriction
    • “Front-running” a possible relaxation of this restriction has already taken place to some extent as bund curve ASW spreads have backed up for “squeezed” maturities relative to shorter tenors
    • Speculation that PSPP buying changes may soon start to slide down the bund curve should be supportive for today’s auction; may buck recent trend of technically uncovered auctions
  • UniCredit (Elia Lattuga)
    • Recent sale of new 10Y bund attracted tepid interest, auction was technically uncovered; demand for 5Y has been more solid at the recent auctions
    • 14bps of cheapening registered over past two weeks should also help; 5Y sector on the curve has richened on 2s5s10s as recent bearish move has come with a sizable steepening of 5s10s
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Antoine Bouvet (Mizuho Financial Group Inc)
David Schnautz (Commerzbank AG)
Elia Lattuga (UniCredit SpA)
Saumesh Dutta (Citigroup Inc)

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