DAILY BOND AUCTION PREVIEW - 12th October 2017: Italian 2020, 2024 & 2048 BTPs, US 30Y Bonds

EU

AUCTION PREVIEW: Italian EUR 6-7.5bln 0.2% 2020, 1.45% 2024 and 3.45% 2048 BTP Auction

0.2% 2020 (no directly comparable data)

1.45% 2024 prev. b/c 1.37 and average yield 1.52%

3.45% 2048 (no directly comparable data)

Bids are submitted by 1000BST and results are published shortly after.

Barclays:

3y - Outright 3y Italian yields have bounced circa 7.5bps off the lows of early September. Grey market trading sees the line coming to the market just under 9bp cheaps in yield terms vs. the previous 3y benchmark, which looks on the rich side. On a cross market basis the line has widened by just under 5bps vs. Germany since mid-September and by circa 4bps against Spain, most of which has happened this week.

7y - The line came to the market around 8bps cheap in ASW terms versus the previous benchmark 7y BTP and has since cheapened circa 2bps since, this leaves the line at a discount of just under 10.5bps. This still looks rich, however, versus recent 7y rolls, which have typically traded in the high teens early in the bonds tapping cycle. Cross market, 7y Italian paper has underperformed by 3bps in the past week vs. Spain.

30y - The line has steepened by circa 3bps against the 10y area of the Italian curve since early July, leaving the 10s30s curve back at multi year highs. Cross market, similar to the shorter bond, the Italian 30y area has cheapened by 7bps vs. Germany since mid-September and by 6.5bps vs. Spain in the past week.

Societe Generale:

3y - On the grey market the line is being quoted 4.2bps in z-spread above the current on-the-run Jun-2020 for a 4m maturity extension. The line offers a decent pick-up against the current on-the-run Jun-2020, larger than we saw in 2016. Part of this reflects a steeper curve now vs last year. Rolldown has become more appealing in the process, with about 9bps/3m carry and roll on this new issue. We see little opportunity in relative value terms or cross market vs. Spain. The 2022-2024 BTP looks steep in ASW terms, as well as vs Spain. This could help demand.

7y - The line has underperformed the nearby Sep ‘24 ahead of this tap. Plus, the 2022-2024 BTP spread looks steep, in ASW and versus Spain. This could help demand.

30y - The 10s30s BTP curve has steepened by circa 5bps over the past week, which could help demand. The line has also seen a concession against the nearby Sep ’46 which could help demand.

US

AUCTION PREVIEW: US USD 12bln in 30y Notes

Today the US Treasury is to sell USD 20bln in 10y notes and the results are expected shortly after 1800BST (1200CDT).

Looking at the historical data, the B/C at the last auction held was 2.21, dealers took down 34.4% of the issue and indirect bidders accounted for 58.8%. The auction prior to the last had a B/C of 2.32 and indirect bidders accounted for 66.8% of the issue.

The average of the past six auctions has seen a B/C of 2.28, dealers have taken 31.4% and indirects have taken 62.4% of the paper over that horizon.

The average of the past three auctions has seen a B/C of 2.32, dealers have taken 27.8% and indirects have taken 62.4% of the paper over that horizon.

Barclays:

30y auctions have generally tailed in recent times. Only one auction over the past 12 months has come through. Final demand has weakened somewhat. On a three-month moving average basis, since May, foreign demand has declined 4pp, which has only been partially offset by higher demand from investment funds. The sector appears to have set up as the 10sUS30s fly has richened in line with typical price action going into a non-refunding bond auction.

Societe Generale:

From a relative value perspective, the current 30y is trading rich on asset swap versus the old 30s compared with the previous two auctions. The 5s30s curve has flattened since the last auction. Overall The upcoming 30y bond auction will likely need concession to be underwritten smoothly because it lacks a clear set-up. A flatter curve since the last auction, the continuing drop in foreign demand at the long end and September CPI risk on Friday are negatives for the auction along with the poor reception of last month's auction. However, the latest sell-off has made the sector attractive on an outright basis, as the benchmark yield trades above the stops from the last two sector auctions. In addition, the FOMC minutes on Wednesday will likely provide some clarity, which should help the set-up for the auction on Thursday.

11 Oct 2017 - 20:00- Fixed IncomeData- Source: RANsquawk