HALISTER1: AUCTION PREVIEW: Short Covering Support Seen Despite OAT Risks

AUCTION PREVIEW: Short Covering Support Seen Despite OAT Risks

(Bloomberg) -- France plans to sell total of EUR6-7b in 0.25% 11/2026, 1.5% 5/2031 bonds at auction.
  • Rich repo levels hint at short covering demand, while reduced size is supportive, analysts remain cautious given political risk
  • Citigroup (Saumesh Dutta)
    • Both issues have lagged on the curve; 10-year has cheapened on the 2s10s30s fly over the past five months, while 2031 bond has cheapened on 7s15s30s curve in past four months
    • Both issues have also underperformed swaps and core peers over the past month, though given headline risks don’t rule out further widening going forward
  • Mizuho (Antoine Bouvet)
    • Election uncertainty is likely a challenge for long end French supply; limited size and the shorter duration of these bonds, compared to previous long-end sales should support
    • The 05/2031 bond has performed well on the curve, which suggests good client demand; both bonds are special on repo, indicating potential for short-covering demand
  • ING (Padhraic Garvey)
    • With 10-year France-Belgium spreads at record wides, auction offers a good opportunity to switch into OATs, for those assuming Ms Le Pen won’t win the presidency
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Saumesh Dutta (Citigroup Inc)
Antoine Bouvet (Mizuho Financial Group Inc)
Padhraic Garvey (ING Groep NV)

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