HALISTER1: AUCTION PREVIEW: Portugal Rating Woes Weigh, Concession Supports

AUCTION PREVIEW: Portugal Rating Woes Weigh, Concession Supports

(Bloomberg) -- Portugal to auction 3.85% 04/2021, 2.875% 07/2026 for a combined EU750m-EU1b at 11:30am CET.
  • Analyst views on the sale are mixed given sovereign rating concerns and little value highlighted in terms of RV; outright levels in 10Y, recent concession seen as supportive for the auction
  • BBVA (Jaime Costero)
    • 5Y bond has been most exposed to risk-on, risk-off dynamics this year; bond has cheapened in recent weeks both on the 2s5s8s fly and 2s5s ASW box
    • 10Y area offers good value on cross-market basis, spread vs SPGBs looks attractive; favor buying the bond in the switch against SPGB 04/2026 targeting 180bps-190bps area
  • Societe Generale (Marc-Henri Thoumin)
    • Both bonds have underperformed shorter-dated sectors; 10Y has cheapened in RV vs 10/2025
    • Portugal’s long-term outlook remains challenging though concession should help auction demand
  • Commerzbank (David Schnautz)
    • Relatively low combined size of EU750m-EU1b suggests a cautious approach to auctions
    • Striking that 04/2021 is being tapped for fourth time in 2016, given ~26% of supply this year has been sold in 2021 maturities
  • Mizuho (Antoine Bouvet)
    • PGBs have failed to recover from mid-August sell-off, when conflicting interpretations of comments from DBRS and a lack of liquidity propelled 10Y yields toward 3%
    • Expect demand to materialize at these levels; both bonds are not particularly attractive in RV terms
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
1174Z PL (Portuguese Republic)

People
Antoine Bouvet (Mizuho Financial Group Inc)
David Schnautz (Commerzbank AG)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)
Marc-Henri Thoumin (Societe Generale SA)

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