HALISTER1: AUCTION PREVIEW: SPGBs Lack Concession, Though Special in Repo

AUCTION PREVIEW: SPGBs Lack Concession, Though Special in Repo

(Bloomberg) -- Spain to sell 0.75% 07/2021, 6% 01/2029 for EU2b-3b and 0.55% I/L 11/2019 for EU250m-750m at 10:30am CET.
  • Despite lack of concession, both conventional bonds trade special in repo, which along with small sizes, should prove supportive
  • Barclays (Huw Worthington)
    • 5Y has richened just under 1.5bps vs peers in past week, sits close to richest levels seen since issued in March
    • On-the-run 01/2029 has cheapened on the curve since auction announcement by ~1bp; concession came from 12- month rich levels for the bond, now trades around fair value
    • Cross market, both conventional issues have been strong performers recently, have not experienced any cross- market concession, trade around YTD tights vs both Germany and Italy
  • Mizuho (Peter Chatwell)
    • The 5Y has managed to perform on the curve into this supply, trades special in repo, suggests demand will be solid here to cover shorts
    • 01/2029 is also special in repo, does not offer anything obvious in RV, expect auction to go without a hitch, but don’t look for strong results
  • Commerzbank (David Schnautz)
    • Smooth auctions expected due to supportive cash flow environment with ~EU57b of coupons and redemption due this week, benign supply outlook
    • Auction is the lowest target range since mid-May, look for overall allocation slightly in upper end of the range
    • Regarding I/L bond, small size, lack of any other EGB linker supply is supportive
  • Danske Bank (Anders Moller Lumholtz)
    • SPGBs have shown very strong performance recently vs both core and peers such as Italy; 10Y yield spread vs Italy at tightest levels since March 2015
    • General election outcome, cancellation of August auction, cancellation of European Commission fines, and Italian banking concerns have fueled Spanish outperformance
      • At current levels, Spain looks rich relative to Italy
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Huw Worthington (Barclays PLC)
Anders Lumholtz (Danske Bank A/S)
Anders Moeller Lumholtz (Danske Bank A/s)
David Schnautz (Commerzbank AG)
Peter Chatwell (Mizuho Financial Group Inc)

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