EU CREDIT SUPPLY: New Issue Performance

The DMO will sell GBP4.75bln of the 4.375% Mar-30 Gilt (ISIN: GB00BSQNRD01) this morning. 

• This Gilt was launched in January and has been re-opened in each of the six months since. It is scheduled to be sold again in September.
• The seven prior auctions (including the launch) have attracted an average bid-to-cover ratio of 3.14x (range 2.95x in April to 3.39x in March) and an average tail of 0.44 (range 0.2bps in July and August to 1bp in April).
• RBC expect “the auction today to go fine with this likely being the penultimate tap, 5y ASWs having cheapened over the past week and the bond looking attractive on micro-RV structures”.
• Results will be available shortly after the bidding deadline closes at 1000BST. 

SFIU5 96.10/96.25cs, bought for 1 in 1.5k.

Gilt futures are -25 ticks at 92.01, underperforming Bunds following this morning’s UK labour market report. As noted in earlier bullets, elements of the report were a little stronger-than-expected. However, there are still signs that the labour market is continuing to ease, with pay growth and vacancies falling and most other employment metrics/surveys point to decelerating employment growth in contrast to the LFS series.

• Gilts reached a session low of 91.92 just after the open, leaving initial support at 91.87 (August 8 low) untested.
• This level shields the August 1 low at 91.44, with key support and the bear trigger seen much further out at 91.08 (July 18 low).
• Gilt yields are 2-3bps higher, with the curve lightly bear steepening. The 10-year yield was unable to push through the 4.60% handle at the open. The 10-year Gilt/Bund spread is 3bps wider at 189.5bps.
• The DMO will sell GBP4.75bln of the 4.375% Mar-30 Gilt this morning.
• Otherwise, the domestic calendar is light today. Broader focus remains on this afternoon’s US CPI report.