HALISTER1: AUCTION PREVIEW: U.K. Linker Supply Outlook Supportive

AUCTION PREVIEW: U.K. Linker Supply Outlook Supportive

(Bloomberg) -- U.K. to sell GBP1.4b 0.125% I/L 2026 at 11:30am CET.
  • RBS (Simon Peck)
    • Favor owning breakevens, relatively light IL supply vs conventionals in 2Q, potential inflationary pressures from GBP FX depreciation ahead of Brexit referendum, signs CPI may have bottomed
    • Recommended buying 10Y cash breakevens vs swaps at 38bps, target 28bps; carry is favorable at ~30bps/year
  • Santander (Adam Dent)
    • Expect decent demand as first linker sale in 4-weeks, modest dv01 for 10Y I/L
    • Real yields have bounced from release lows, expect risk- averse environment to keep yields depressed
    • Auction bonds near cheapest lvls vs neighbors, partly due to overall curve steepening rather than concession
    • Recommend buying auction bond as breakeven box vs I/L 2019s
  • RBC (Peter Schaffrik)
    • Auction unlikely to be problematic due to low breakevens; RV unlikely to be a consideration for auction, believe the usual index-linked investors will take down the tap
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Simon Peck (Royal Bank of Scotland Group PLC)
Adam Dent (Abbey Natl Treasury Services)
Peter Schaffrik (RBC Europe Ltd)

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