AUCTION PREVIEW: SocGen Says 5Y BTP Offers Value on 2s5s30s Fly
Source: BFW (Bloomberg First Word)
People
Gianluca Salford (JPMorgan Chase & Co)
Marc-Henri Thoumin (Societe Generale SA)
Peter Chatwell (Mizuho Financial Group Inc)
Rainer Guntermann (Commerzbank AG)
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UUID: 7947283
(Bloomberg) -- Italy to auction 1.20% 04/2022 bond for EU3.5b-4b, 2.20% 06/2027 for EU1.5b-2b and 1.60% 06/2026 for EU0.5b-1b, as well as CCTeu debt for a combined EU2.5b-3b, at 11am CET. Below are some analyst views on the sale.
Alert: HALISTER1- Societe Generale (Marc-Henri Thoumin)
- New BTP April 2022 offers large pickup of 16bp in z- spread against current on-the-run (November 2021), much more than last 5Y launch did in September, illustrating the recent curve steepening in BTPs and attractive rolldown in this area
- 5-year sector offers interesting relative value, which should help demand for new 5Y benchmark; the 2s5s30s fly has risen by some 30bp since early February, while in contrast the equivalent SPGB fly has remained unchanged
- Expects limited interest in June 2026 and June 2027, with no particular pre-auction cheapening against their immediate neighbors; says these two bonds look rich against shorter-dated maturities
- JPMorgan (Gianluca Salford)
- Expects new 04/2022 to be issued at small premium relative to surrounding bonds, given the recent low- coupon/high-coupon dynamic that’s typical during a risk- off move and after last two 5Y BTPs were issued with small benchmark discount (0-1bps) relative to surrounding securities
- Find current level of low-coupon premium excessive as old 10Y benchmark BTP 1.60% 06/2026 outperformed aggressively relative to surrounding high-coupon BTPs
- Note that 10Y benchmark 07/2027 was the worst performer in the sector, even vs the surrounding high-coupon BTPs; bond is trading with a benchmark roll of more than 12bp, the highest for 10Y BTPs for past few years
- Mizuho (strategists including Peter Chatwell)
- See fair value at +23bp for the November 2021-April 2022 roll which is about +1bp above the existing 1.35% April 2022 issue
- Think decision to sell June 2026 and June 2027 notes will make sale easier to absorb
- Expect choice of June 2026 as the off-the-run as result of dealers highlighting underlying demand for this security; see little evidence of scarcity in June 2026 or June 2027 bonds in the repo market and their performance has lagged that of more special issues such as December 2026
- Commerzbank (strategists including Rainer Guntermann)
- Say Friday’s underperformance suggests the market has made some room with coupon payments and index flows providing also support to the auction
Source: BFW (Bloomberg First Word)
People
Gianluca Salford (JPMorgan Chase & Co)
Marc-Henri Thoumin (Societe Generale SA)
Peter Chatwell (Mizuho Financial Group Inc)
Rainer Guntermann (Commerzbank AG)
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UUID: 7947283