EURi: B/Es slip as French auctions land; New BTPei-29 up next

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Dealers mulled demand for the French linker auctions today while assessing fair value for the looming BTPei-29.

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  • B/Es tighter as supply arrives and risk off weighs

  • Core inflation and the outlook for HICPx: Barclays

  • New issues


    B/Es tighter as supply arrives and risk off weighs

    French linker auctions and the approach of a new 5y BTPei captured traders’ attention today, with EUR swaps ending 2-3bps lower against an unsupportive backdrop of falling oil prices, soft US data, renewed demand for duration and weakness in front end TIPS before the 5y sale.    


    The AFT sold €802m of the OATi-28, €702m of the OATei-38 and only €244m of the OATei-53 with bid to cover ratios of 2.22, 2.90 and 3.59 respectively. The auction’s delta was described as “larger than usual” in a “long-focused” sale although this was trimmed by the small amount of the OATei-53 sold. Dealers said that overbidding at the auction was “going down” although the bonds were still squeezed today with “strong” bids into the cut-off, with inflation staying well bid and OAT futures rising on the follow.  Ahead, some traders were now looking for the long-awaited new 15-20y OATi to land in May.  


    Next up, Italy will auction €2.0-2.5bn of a new long 5y BTPei-29 to help make this the heaviest week for supply of the year so far. The decision to sell a new 5y BTPei had come as a slight surprise to some traders (perhaps more about the timing although there had also been talk of a new 15y). Dealers put fair value at 15-16bps over the BTPei-28 (which underperformed on the curve today) although the new bond seemed to be trading cheaper when-issued at around 20bps over.    


    In swaps, EUR 5y5y fell to end just off the day’s lows at 2.44% (-3bps) while the Total Derivatives SDR shows a range of trades including EUR 10y late in the session at 2.4655% and 2.4905%.  


    Core inflation and the outlook for HICPx: Barclays  

    Euro core inflation was confirmed at 5.7% yesterday and HICPx inflation came in at 6.91%yoy. Ahead, although core was steady in March (and the ECB’s ‘supercore’ measure was also stable at 6.3%), analysts at Barclays pointed out that other estimates fell back:


      “March measures of underlying inflation show tentative signs of moderation, albeit at a very modest pace and from record-high levels:…the 50% trimmed mean fell to 6.5% y/y (-0.6pp); the weighted median inflation eased to 6.5% (-1.3pp); the principal common component of headline inflation eased to 6.5% y/y (-0.6pp); and the principal common component of core inflation eased to 3.4% y/y (-0.2pp).”


    Still, even with some of these core measures falling, Barclays seems reluctant to call the start of a sustained decline in inflationary pressures just yet:


      “While most measures of underlying inflation eased m/m in March, we are not yet seeing a retrenchment in broad price pressures, in our view… the basket diffusion indices appear to have peaked, but show little improvement”.


    For April, Barclays forecasts core inflation unchanged at 5.7% before expecting core inflation to drop gradually to 5.3-5.5% in May to August, before falling to 3.2% by December. Similarly, euro HICPx inflation is seen ticking back up to 7.06% (122.89) in April before dipping to 6.35% (123.90) in May, and 3.23% (124.12) by December. 


    New issues

    • Goldman Sachs launched a €5m (max) inflation-linked note due 21 Apr 2027. The  EMTN pays euro HICPx inflation floored at 0%. Self-led