HALISTER1: AUCTION PREVIEW: Strong Demand for Spain 50y; 10y Cheap in RV

AUCTION PREVIEW: Strong Demand for Spain 50y; 10y Cheap in RV

(Bloomberg) -- Spain to sell 0.25% 01/2019, 5.9% 07/2026, 3.45% 07/2066 for EU3-EU4b at 10:30am CET.
  • Analysts expect 50y sale to go well given strength of demand in similar BTP issue recently; 10y seen as attractive in RV
  • ING (Ben Schroeder)
    • First reopening of ultra-long bond since its launch; recent 50y BTP shows demand in the sector remains strong
    • Valuation-wise, the 30s50s curve has flattened ~6bps since mid-August, with concession ahead of today’s tap leading to a re-steepening of some 2bps
    • Spain also on the verge of finally overcoming a political deadlock
  • BBVA (Jaime Costero)
    • 3y looks cheap vs fitted curve, issue attractive in RV vs 10/2017 and 01/2020
    • 10y is an old 15y benchmark, has traded in line with peers; offers some value when looking on z-spread vs 02/2026
    • Strong appetite for 50y BTP; recent flattening of 30s50s suggests hunt for yield continues, some risks in owning the sector ahead of ECB
      • Like buying 50y SPGBs vs Italy as spread looks wide relative to 30y
  • Mizuho (Antoine Bouvet)
    • Rise in 3y Spanish yields since mid-October has been relatively modest, limited concession seen ahead of the tap
    • Expect more RV interest in 10y issue given it’s the cheapest in the sector on the fitted curve
      • Suspect there’s a short base among dealers as the bond trades special on repo at ~10bps compared with surrounding issues
    • 50y tap should be well-supported as 30s50s Spain has been flattening this month despite the headwind of 50y BTP syndication, which indicates good investor demand
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Benjamin Schroeder (ING Groep NV)
Antoine Bouvet (Mizuho Financial Group Inc)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)

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