Spain's Tesoro Publico........>

SPAIN AUCTION PREVIEW: Spain's Tesoro Publico sells E4.0-5.0bln of SPGB 0.05%

Jan-21, 0.45% Oct-22, 1.45% Oct-27 and 3.45% Jul-66 on Thursday. 

- BACKGROUND: Domestic politics have improved and spreads to the core have

tightened aggressively since previous auctions.  

- RV/HISTORY: From market contacts, we believe that there is a structural short

of Spanish debt against longs in Italy and this is likely concentrated in the

10Y. The Bonos-BTP spread has tightened to only 28.2bp, the tightest for a year

and BTPs offer a good leap off into Spain and can be justified by the closing of

positions ahead of year-end and look forward to Italian elections. As in all

markets, the Spanish curve is fairly flat and limits the attractiveness of small

duration extensions. However, the 10-50Y spread is 164bp and at all time highs.

Furthermore, the 50Y Bonos-BTP spread is a particularly tight 11bp and may tempt

a good hedge fund bid in what is a liquidity event for the Bonos 3.45% 2066.

Typical bid-cover ratios in Bonos auctions range from 1.25x  to 2.5x

- RESULTS: Auction cut-off is 0930GMT, results due around 0945GMT.