PERU: Analyst Views On BCRP Decision

ouple of Italian 2yr and 10yr Block trades, it looks closely weighted and could be a flattener.

• BTSU5 ~2.34k sold at 107.76.
• IKU5 1k bought at 121.12.

This morning, Germany will re-open its on-the-run 10-year 2.60% Aug-35 Bund (ISIN: DE000BU2Z056) for E5bln.

• The size of this auction is in line with the last reopen of the Bund on July 23.
• Demand metrics in German auctions have been a little mixed recently, and that also applies to the 10-year segment. At the last July 23 auction of the 2.60% Aug-35 Bund, the bid-to cover came in at 1.49x and the bid-to-offer at 1.14x - clearly on the weaker side, and a deterioration against the 1.63x / 1.24x seen at the initial opening of the line despite that being for a larger E6bln size. These metrics compare to a 1.38x - 2.84x range for bid-to-covers and a 1.06x - 2.17x range for bid-to-offers seen in German 10y auctions this year.
• At least the secondary market mid-price was below the low price achieved at recent German 10y auctions (the last time that was not the case was on April 23).
• Bund positioning currently appears short according to our Europe PI - full pdf here.
• Today's results will also be interesting to watch in the light of the Bund price action across the past two days, which lacked a clear headline driver, but notably brought 30y yields to 14-year highs.
• The next German auction will be E4.5bln of the 2.20% Oct-30 Bobl (ISIN: DE000BU25059) on August 19, while the 2.60% Aug-35 Bund will be re-opened on September 3, also for E5bln.
• Timing: Results will be available shortly after the bidding window closes at 1030BST/1130CET.

German swap spreads and ASWs widen alongside the recovery rally in outright bonds this morning, recovering from multi-week/month lows registered yesterday. 

• Bull flattening on the cash bond curve translates to outperformance for long end swap spreads & ASWs.
• Earlier today Commerzbank noted that “Schatz-ASW breached the recent range, briefly hitting 11bp vs. €STR yesterday. This marks the cheapest levels since early March when the German fiscal package was making headlines and slightly exceeds current German GC spreads vs. €STR. Without structural cheapening in repo rates and other front-end drivers, we expect Schatz to stay anchored with GC serving as cap similar to the past months and anticipate spreads will reverse".