HALISTER1: AUCTION PREVIEW: OATs Offer Cross-Market Value; 2Y Issue Concern

AUCTION PREVIEW: OATs Offer Cross-Market Value; 2Y Issue Concern

(Bloomberg) -- France to sell 0% 02/2019, 0% 05/2021, 4.25% 10/2023 for EU6b-EU7b at 10:50am CET, as well as I/L bonds for EU1b-EU1.5b at 11:50am CET.
  • OAT issues seen as offering value on cross-market basis; yesterday’s failed bobl auction raises concern over 2Y OAT issue as it offers similar yield levels
  • France is due to repay EU25b in coupons and redemptions on July 25, given T+2 auction settlement; these cash flows will be reinvested at auction
  • Barclays (Huw Worthington)
    • 02/2019 has cheapened versus peers in past few days with a concession of ~2bps, moving from rich to slightly cheap on the curve; has underperformed versus Germany, Netherlands
    • 5Y bonds have cheapened further on the roll, looks to be good value on the curve; fairly large underperformance cross- market versus Austria, Netherlands and Belgium, with spreads close to the widest levels seen this year
    • 10/2023 issue sits in middle of recent range on the curve; has seen cheapening versus other core, semi-core bonds, as with other bonds on auction today
  • SocGen (Marc-Henri Thoumin)
    • OAT 3s5s looks steep vs OLOs, look for convergence in slopes post-auction
    • 10/2023 has seen a bout of concession both on the curve and versus OLO; has cheapened versus 05/2023 by ~2bps since early July; both 2021 and 2023 issues offer good pick-up vs OLOs
  • Mizuho (Peter Chatwell)
    • After yesterday’s failed bobl auction with yield around –0.51%, today’s 20/2019 auction yielding around –0.49% could also suffer from weak demand
    • 10/2023 has offered a healthy concession before the auction which could help boost demand
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Huw Worthington (Barclays PLC)
Marc-Henri Thoumin (Societe Generale SA)
Peter Chatwell (Mizuho Financial Group Inc)

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