HALISTER1: AUCTION PREVIEW: Supply Outlook Supportive for 30y Bund Sale

AUCTION PREVIEW: Supply Outlook Supportive for 30y Bund Sale

(Bloomberg) -- Germany to sell 2.5% 08/2046 for EU1b at 11:30am CET; analysts optimistic on the sale given limited supply outlook, steepening of 10s30s and specialness in repo.
  • Mizuho (Antoine Bouvet)
    • Final 30y auction of 2016; suggests sector will be supported by lack of supply until the new year; expect a new 30y benchmark in early 2017, raising risk of no further reopenings of this issue
    • Auction should be supported by recent steepening of 10s30s, and cheapening of the bond on the 07/2044-08/2046 roll in z-spread terms
    • However in yield terms, there is only limited concession on the roll
  • ING (Ben Schroeder)
    • Repo specialness suggests underlying demand for this final German 30y supply of 2016
    • Yield of 0.68% is at the upper end of post-Brexit vote range although in the broader context that valuation “still looks stretched” as ECB looks set to tweak the modalities of the PSPP program
    • Recent move in 30y bund ASW, steepening of 10s30s after recent taper talk may give confidence to some investors
      • However, 30y swap spreads could tighten at least another 5bps if ECB relaxes depo rate restrictions on QE
  • Commerzbank (David Schnautz)
    • Final chance to catch any 30y bunds in primary market; track record of 30y nominal auctions has been encouraging with the last five auctions all technically- covered
    • Given benign supply outlook for at least 2 1/2 months, expect a very smooth auction
    • Look for limited pre-auction positioning needs; expect the probably surprisingly strong auction results to support bunds also in outright terms
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Antoine Bouvet (Mizuho Financial Group Inc)
Benjamin Schroeder (ING Groep NV)
David Schnautz (Commerzbank AG)

To de-activate this alert, click here

UUID: 7947283