HALISTER1: T-LTRO II May Buoy Peripheral EGBs, Spur 4Y EUR Swap Receiving

T-LTRO II May Buoy Peripheral EGBs, Spur 4Y EUR Swap Receiving

(Bloomberg) -- ECB will announce allotment for the final 4-year T-LTRO II operation at 11:30am CET on March 23.
  • Analysts expect the operation to result in receiving in 4y sector as banks swap to floating, which may also widen 3s6s basis in 4y-5y swaps; short-dated peripheral bonds expected to find support as carry trades are initiated with the funds
    • On Monday, the front-end of peripheral curves outperformed, led by 5y Spain and Italy, which were boosted by LTRO-driven carry demand, said traders
    • Following the previous LTRO-II operation, over EU1b of 4y EUR swap traded, as the sector gained, signaling heavy receiving in bucket
  • ECB has already reported that EU16.74b of prior LTROs will be repaid
  • Sponsorship for this operation is expected to be above the December level of EU62b, given this is the final operation and as banks will probably look to lock in cheap funding for the 4-year period
  • Take-up estimates from analysts show a fairly wide range, from lows of EU30b to highs of EU360b; mean estimate is around 135b
  • Rabo expects a gross take-up of EUR30b-35b
  • SocGen sees around EU100b
  • JPMorgan looks for EU70b with upside risks given the somewhat more hawkish than expected message from ECB and the rise in yields
  • Barclays expects gross take-up of EU110b; says a much bigger amount is unlikely as the two main LTRO borrowers (Italian and Spanish banking systems) have already raised significant amounts of liquidity, which seems to be concentrated in the biggest banks
  • ING expects around EU75b-100b, with risks skewed to a larger take-up as more banks lock in 4y funding costs at -40bp
  • Commerzbank looks for just over EU100b, given balance sheet constraints, rising excess reserves
  • Danske Bank anticipates a take-up of around EU250b, boosted by more clarity on the interest rate of the loan, final chance to grab liquidity, rising ECB hike expectation and with French banks concerned about political uncertainty
  • NatWest Markets expect a jump to EU360b given this is the last opportunity; this number is only around 25% of the maximum possible drawdown from Euro banks (est. EU1.2t)

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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