Marketing Communication
Group Economics
EGB Rates Watch
Macro & Financial Markets Research Kim Liu +31 20 343 4669 kim.liu@nl.abnamro.com
Reopening DSL 2025 – Decent value
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12 October 2015
Tomorrow, the DSTA will hold a penultimate auction of its 10y benchmark, the DSL July 2025 The announced target size is EUR 1.0 – 2.0bn and we expect EUR 1.7bn to be issued After tomorrow’s auction, the DSTA will have completed 86% of its yearly funding plan We expect a smooth auction as the bond is rather cheap and as the auction size is relatively small The 10y benchmark shows decent value vs 10y Bunds and vs semi core bonds, especially FRTRs The Dutch 10y bond shows limited or no value in ASW or vs RFGBs
Reopening DSL 2025: Penultimate benchmark auction The DSTA will hold the penultimate auction for its 10y
DSTA Q4 Funding schedule Auction Date
Details
Amount (EUR bn)
benchmark tomorrow. The bond was initially launched in
13 October
Reopening DSL 2025
1.0 – 2.0
March of this year and has since then been reopened 2 times.
27 October
Reopening off the runs
1.5 – 2.5
10 November
Reopening DSL 2018
2.0 – 3.0
24 November
Reopening DSL 2025
1.0 – 2.0
The target range for tomorrow’s auction has been set at EUR 1.0 – 2.0bn. The final tap of this 10y benchmark will take place on 24 November. This final sale will also be the last auction of the year for the Dutch State. Tomorrow’s auction is the first scheduled auction for the Dutch State in Q4. Recently, the Dutch Treasury announced its Q4 funding plan. The main points are summarized below and shown in the table. In total, the DSTA will raise EUR 8.5bn in the fourth quarter after having already issued almost EUR
Source: DSTA
See for official publication: http://www.dsta.nl/english/News/Press_releases/2015_Q3/Qua rterly_outlook_and_issuance_calendar_fourth_quarter_2015
Auction details – Reopening 10y benchmark
40bn in the first three quarters of the year. The year to date funding equates to 82% of the target.
Auction Date
Tuesday 13 October
Timing
10:00 AM CET
Currently, the Dutch 10y benchmark bond has an outstanding
Target Amount
EUR 1.0 – 2.0bn
amount of EUR 11.77bn. The DSTA’s policy is to increase the
Settlement
15 October 2015
outstanding amounts of its benchmark bonds to above EUR
Source: DSTA
15bn. This means that in the next two auctions of the 10y benchmark a minimum of EUR 3.3bn will need to be issued.
Bond characteristics
The target amount of EUR 1.0 – 2.0bn for the final reopening has already been announced in the Q4 funding update. It is
Coupon
therefore likely that the DSTA will target around EUR 1.7bn in
Maturity
15 July 2025
Outstanding
EUR 11.772bn
ISIN
NL0011220108
tomorrow’s sale and that the remainder (of around EUR 1.6bn) will be raised in the last auction in November. This will also mean that after tomorrow’s auction, the DSTA will have completed 86% of its yearly funding plan.
Source: DSTA
Insights.abnamro.nl/en
Bloomberg: ABNM
0.25%
2
Euro Rates Weekly - Reopening DSL 2025 – Decent value - 12 October 2015
Relative value considerations
Semi core bonds are trading rich vs 10y Holland
The Dutch 10y benchmark, the DSL 0.25% July 2025 was
bps
issued in March of this year at an outright yield of 38.7bps. This equated to a launch spread of 16.5bps over its reference bond, the DBR 0.5% February 2025.
30 20
Since then, the outright yield of the Dutch 10y benchmark first rose to above 1% before tightening back to its current level of around 79bps. Also compared to its German peer, the current yield spread of 23bps is wider than the initial launch spread.
10 0 Mar-15
We therefore judge the current 10y DSL – DBR yield spread to
May-15
Jul-15
Sep-15
Yld spread FRTR May 2025 - DSL July 2025
be appealing from a historical perspective. The spread shows
Yld spread BGB June 2025 - DSL July 2025
even more value as we expect the ECB to expand its current QE programme by increasing the monthly purchase amount by
Source: Bloomberg
EUR 20bn before the end of the year. We think the ECB meeting of December is the most likely date. We expect that a
Finally we note that the 10y DSL is showing limited value in
significant amount of this additional increase will need to be
ASW and hardly any value compared to RFGBs. Particularly
sourced from government bonds. This will support eurozone
interesting to note is that compared to the Finnish 10y (RFGB
yield spread tighteners.
0.875% September 2015) the Dutch 10y benchmark bond is actually trading at an expensive level. In this 10y area, the
10y DSL – DBR spread is showing interesting value
pick-up of Finnish bonds vs Dutch bonds is around 8bps. For
In bps
bonds maturing in 2023 (RFGB April 2023 and DSL July 2023), the spread is trading flat. However, the aforementioned
40
Finnish and Dutch bonds which mature in 2023 have slightly 30
different durations. Nonetheless, we would not prefer to go long the 10y Dutch benchmark and go short the RFGB
20
September 2015.
10
0 Mar-15
May-15
Jul-15
Sep-15
Yld spread DSL July 2025 - DBR February 2025 Source: Bloomberg
For a trade with a short(er) horizon than the trade above, we observe that the Dutch 10y is trading at cheap levels vs semi core Belgian and French bonds. Especially versus the FRTR May 2025, the yield spread of 11bps is at rather cheap levels. We therefore see some potential for the French 10y bond to underperform versus the Dutch equivalent in the short term.
3
Euro Rates Weekly - Reopening DSL 2025 – Decent value - 12 October 2015
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