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Little Concession In 10s Ahead Of Auction, 5s10s20s Fly Eyed

GILTS
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Little in the way of notable concession seen ahead of today’s auction, with the DMO set to sell GBP3.75bln of the 4.625% Jan-34 gilt.

  • 2s10s is little changed on the week, with hawkish BoE/Fed repricing keeping the front end under pressure.
  • The 5-/10-/20-Year butterfly may provide a more enticing opportunity for those looking for long 10-Year RV plays, with 10s operating around multi-month cheaps on the structure.
  • This will be the final auction of the current on-the-run 10-year gilt, which should promote a degree of baseline demand.
  • An issuance gap for conventional 10s is then expected until the launch of a new 10-year via syndication (we pencil in the W/C 10 June for the syndication). This issuance gap for 10s, coupled with issuance of the 4.125% Jul-29 & 4.75% Oct-43 lines later in May, could promote a degree of 10-Year outperformance.

Fig. 1: UK 5-/10-/20-Year Butterfly (bp)

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Little in the way of notable concession seen ahead of today’s auction, with the DMO set to sell GBP3.75bln of the 4.625% Jan-34 gilt.

  • 2s10s is little changed on the week, with hawkish BoE/Fed repricing keeping the front end under pressure.
  • The 5-/10-/20-Year butterfly may provide a more enticing opportunity for those looking for long 10-Year RV plays, with 10s operating around multi-month cheaps on the structure.
  • This will be the final auction of the current on-the-run 10-year gilt, which should promote a degree of baseline demand.
  • An issuance gap for conventional 10s is then expected until the launch of a new 10-year via syndication (we pencil in the W/C 10 June for the syndication). This issuance gap for 10s, coupled with issuance of the 4.125% Jul-29 & 4.75% Oct-43 lines later in May, could promote a degree of 10-Year outperformance.

Fig. 1: UK 5-/10-/20-Year Butterfly (bp)