Marketing Communication
EGB Auction Preview Reopening DSL April 2018
Group Economics Macro & Financial Markets Research Kim Liu +31 20 343 4669 kim.liu@nl.abnamro.com
DISCLAIMER: This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead. This report is marketing communication and not investment research and is intended for professional and eligible clients only.
08 June 2015
Tomorrow, the DSTA will hold the second tap of its 3y benchmark bond We expect a size of close to EUR 3bn, which will take YTD funding to over 60% of its target Various factors could lead to scarcity value of short-dated Dutch bonds in the remainder of 2015 The Dutch bond offers moderate value vs Germany and in outright yield Cross market, the DSL April 2018 offers good value vs Finland and vs France
Second reopening, expected target size around EUR 3bn
YTD funding to rise to 65% of yearly target
Tomorrow, the DSTA will tap its 3y benchmark, the DSL April
In its Q2 Quarterly Outlook, the DSTA updated its yearly total
2018, for the second time this year. The sale follows the initial
borrowing requirement to EUR 94.8bn. Almost half of this
launch in January and the first reopening in March of this year.
amount (EUR 48bn) will be raised on the capital markets. The
The DSTA aims to raise the outstanding amount of the bond to
other half will be raised by the issuance of money market
at least EUR 15bn before the end of the year. Currently, the
products, like T-bills. Year to date, the DSTA has held 9 bond
outstanding amount is just slightly above EUR 6bn. For
auctions in which it has raised EUR 26bn. This means that
tomorrow, the DSTA aims to auction a size between EUR 2.5 –
year to date, the DSTA has already raised more than half of its
3.5bn. We expect the bond to be reopened another two times
yearly issuance. Including tomorrow’s sale, the year to date
after tomorrow’s transaction. In order to achieve the
issuance will increase to 65% of its target.
benchmark size at the end of the year, we expect the DSTA to aim for around EUR 3bn in tomorrow’s sale of its 3y
Money market issuance acts as an buffer
benchmark.
To raise the total borrowing requirement, the DSTA issues money and capital market instruments. The issuance of money
Auction details
market instruments acts as a buffer, which means that shortfalls or windfalls in the government cash balance will have
Auction Date
Tuesday 9 June
Timing
10:00 AM CET
Target Amount
EUR 2.5 – 3.5bn
Settlement
11 June 2015
Source: DSTA
an direct effect on the issuance of these products. The cash balance can be impacted by various drivers, like the government budget deficit but also other cash flows. Various factors point to cash windfalls… Signs are building that the government will benefit from several cash windfalls this year. Firstly, in its Spring Memorandum, the
Bond characteristics
Dutch government said that the EMU balance is expected to improve by 0.1% to -2.1% of GDP. The impact on the cash
Coupon
0.00%
Maturity
15 April 2008
funding programme at the start of Q3.
Outstanding
EUR 6.368bn
However, the cash balance was already better than expected
ISIN
NL0011005137
balance will become visible when the DSTA will update its
this year. Main reason for this was the fall in yield, which results in more inflow of cash collateral by banks due to the hedging programme of the DSTA. As a result, the DSTA
Source: DSTA
decided to cancel a T-bill programme and extend its buyback
Insights.abnamro.nl/en
Bloomberg: ABNM
2
Euro Rates Weekly - Reopening DSL April 2018 - 08 June 2015
facility. Under its expanded buyback facility the DSTA can now
Outright yield of 3y bond has gained attractiveness
also buy bonds up to T+24 months. Next to these funding
In bps
related cash flows there is also another event which could
0
result in a significant cash inflow, which is the scheduled privatisation of ABN AMRO. The Dutch ministry of Finance has
-5
decided that between 20% and 30% of the shares of ABN AMRO will be sold via an IPO in Q4 of 2015. … which could lead to scarcity value of short dated paper The normal reaction function of the DSTA would be to incorporate future cash inflows in its projections. This could
-10 -15 -20 Jan-15
Feb-15
Mar-15
Apr-15
May-15
Yield of DSL April 2018
result in a reduction of money market funding. If this is true, than the DSTA will need to revise the issuance of T-bills further downwards. Furthermore, it could also decide to step up its
Source: ABN AMRO Group Economics, Bloomberg
buyback programme of bonds. Both decisions will lead to lower availability of shorter dated paper. This would in turn increase scarcity value of shorter dated paper, which would be also beneficial for the 3y bond.
DSLs vs Bunds are moderately attractive In bps
Relative value considerations
20
The Nether April 2018 currently trades at around -4bps in
15
outright yield, after having reached a low in April at around -18bps. Today’s level is only 2bps more expensive than the
10
original level at which the bond was issued at the beginning of
5
the year. Although the outright yield is still not positive, we
0
think that its attractive enough to draw sufficient investor demand.
-5 15 16 17 18 19 19 20 21 22 23 23 24 28 33 37 42 47
German - Nether yield spread curve
Attractiveness against Bunds Compared to German bonds, the attractiveness of the Dutch
Source: ABN AMRO Group Economics, Bloomberg
3y benchmark is moderate. The Nether April 2018 trades at +8bps vs the OBL April 2018. The bond has traded on the wide at +10bps in February, while the most expensive level at +4.5bps was reached at the end of May. On a maturity matched Nether – Bund curve, the Nether April 2018 offers
Dutch 3y benchmark trades flat vs comparable FRTR In bps
also moderate attractiveness.
2
Cross market value against France and Finland
0
The bond offers more value on a cross market basis, especially against France and Finland. The 3y Dutch benchmark is trading practically flat against the FRTR April
-2 -4
2018, which has a much higher coupon, but only a slightly lower duration. Against the shorter RFGB September 2017, the Dutch 3y benchmark is trading almost at its steepest level of 2015. Indeed, the current level is partly because of the
-6 Jan-15
Feb-15
Mar-15
Apr-15
Yld Spread DSL April 2018 - FRTR April 2018
steepening of the short end curve. However, it does offer a good switch alternative for investors who want to step out Finland as Moody’s has revised its outlook to negative.
May-15
Source: ABN AMRO Group Economics, Bloomberg
3
Euro Rates Weekly - Reopening DSL April 2018 - 08 June 2015
3y DSL – RFGB spread is trading cheap In bps
12
8
4
0 Jan-15
Feb-15
Mar-15
Apr-15
May-15
Yld spread DSL April 2018 - RFGB Sept 2017 Source: ABN AMRO Group Economics, Bloomberg
4
Euro Rates Weekly - Reopening DSL April 2018 - 08 June 2015
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