HALISTER1: AUCTION PREVIEW: OATs to Benefit From Dealer Demand Given PSPP

AUCTION PREVIEW: OATs to Benefit From Dealer Demand Given PSPP

(Bloomberg) -- France to sell 0.5% 05/2026, 5.75% 10/2032, 4.75% 04/2035 for EU5b-EU6b at 10:50am CET, as well as OAT I/L 2027, 2029 bonds for EU500m-EU750m at 11:50am CET.
  • ECB QE demand in longer bonds may result in dealer-led auction, analysts say
  • Mizuho (Peter Chatwell)
    • 10Y benchmark is cheapest bond on fitted curve; offers value here, particularly as yield approaches the “psychologically attractive” 0.20% level
    • Longer bonds are high-coupon bonds; expect they have been well-bid by PSPP during the bull-flattening of OAT curve over past few months
    • Expect dealers to be restocking inventory at auction, with a view to place into PSPP rather than end investors
  • Barclays (Huw Worthington)
    • 10Y to be last tap, with new 10Y expected in September; issue has cheapened 0.5bp on the roll, now 2bps cheap in ASW vs old benchmark, marginally rich vs recent discounts
    • Cross-market, 10Y OAT reached YTD tights vs Germany at ~27.5bps at the end of last week; has since seen ~1.5bps of re-widening into supply
    • Off-the-run 10/2032 has underperformed ~1bp vs peers over past month, though still trades rich on the curve; specific dealer demand should be the main source of demand in the auction
  • Commerzbank (David Schnautz)
    • All bonds should enjoy strong demand, expect this to be final auction for the 10y benchmark; longer bonds have not been reopened since August 2015 and Dec. 2015, respectively
    • ECB QE is likely to have left its mark on the “free float” of these bonds
    • Tiny size of linker supply at EU500m-EU750m, “very old and very small” OATi 07/2029 should pose no problems
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
David Schnautz (Commerzbank AG)
Huw Worthington (Barclays PLC)
Peter Chatwell (Mizuho Financial Group Inc)

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