ITC – French 3y, 4y, 6y and Linker Auction Preview
On Thursday at 09:50 BST, France will auction OATs: €7.5 – 9.0bn 3y 0.00% Feb22, 4y 0.00% Mar23, 6y 0.00% Mar25 (~RX 23k futs) and OAT€i: €0.75 – 1.25bn 5y 0.25% Jul24, 11y 0.70% Jul30, 28y 0.10% Jul47 (~ RX 6k futs)
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There is a lot of choice on sale today with 6 lines. French bonds appear popular at the moment and more specifically in the higher maturities. The 6y Mar-25 is closest to the vein of demand and still remains fairly close in Z-spread terms to equivalent maturity Belgian paper but cheaper than the smaller issuers of Austria and Finland. However, bid-cover numbers our auction history tables below demonstrate that short (sub 7y) French bonds have been the recipients of quite elevated bid-cover ratios recently and these auctions should offer little difficulty to digest.
The linker auctions are unusual in that there are 3 lines for a maximum €1.25bn available. This is a rather small-sized offering per line. However, Draghi’s comments at Sintra were quite dovish and supported a decent rise in breakevens and even larger decline in real yields. Thus, investors must buy this auction at extremely low yields. It is difficult to know if the investors will turn up in size, although the small auction should minimise the threat of a poor auction.
(All charts sourced from Bloomberg)
The linker auctions are more difficult to call given quite dramatic swings in real yields in recent days. Certainly, Draghi appears fairly open to renewed rate cuts/QE/Fwd Guidance etc and so justifies some of the very low real yields. But as the chart of the OATei 30 real yield below, the market must take the auction down at extremely low absolute levels.
History:
- 3y OAT: The last 3y OAT was tapped Apr 18 with a cover ratio of 3.76x (vs. the average of 3.1x seen in the previous 3 auctions), tail of 0cts (vs. the average of 0.67cts seen in the previous 3 auctions) and overbidding of 3cts (vs. the average of 2.83ct seen in the previous 3 auctions)
- 4y OAT: The last 4y OAT was tapped Apr 18 with a cover ratio of 3.04x (vs. the average of 2.69x seen in the previous 3 auctions), tail of 1cts (vs. the average of 1cts seen in the previous 3 auctions) and overbidding of 4cts (vs. the average of 3.13ct seen in the previous 3 auctions)
- 6y OAT: The last 6y OAT was tapped May 16 with a cover ratio of 2.1x (vs. the average of 2.95x seen in the previous 3 auctions), tail of 2cts (vs. the average of 1cts seen in the previous 3 auctions) and overbidding of 3.2cts (vs. the average of 3.1ct seen in the previous 3 auctions)
- 5y OAT€i: The last 5y OAT€i was tapped May 16 with a cover ratio of 2.25x (vs. the average of 2.27x seen in the previous 3 auctions), tail of 2cts (vs. the average of 2.33cts seen in the previous 3 auctions) and overbidding of 5cts (vs. the average of 4.73ct seen in the previous 3 auctions)
- 11 OAT€i: The last 11y OAT€i was tapped May 16 with a cover ratio of 2.45x (vs. the average of 2.63x seen in the previous 3 auctions), tail of 4cts (vs. the average of 3cts seen in the previous 3 auctions) and overbidding of 10cts (vs. the average of 6.93ct seen in the previous 3 auctions)
- 28y OAT€i: The last 28y OAT€i was tapped Apr 18 with a cover ratio of 2.74x (vs. the average of 3.11x seen in the previous 3 auctions), tail of 6cts (vs. the average of 4.67cts seen in the previous 3 auctions) and overbidding of 18cts (vs. the average of 15ct seen in the previous 3 auctions)
Previous Auction Stats: 3y, 4y & 6y OATs and 5y, 11y & 28y OAT€i:
