The IGCP has decided to use this week’s scheduled auction window to tap PGB 2.25% April 2034, PGB 3.50% June 2038 and PGB 4.10% February 2045, with an indicative issuance range of EUR1.25-1.50bn (in nominal terms). If the Portuguese Treasury issues the full amount, Portugal's year-to-date issuance will reach c.EUR10.5bn, equivalent to 65.5% of its total gross bond funding needs for FY24e (which has recently been revised up to EUR16bn).
Tactical ideas for auctioned bonds:
- We see some tactical value in PGB April 2034 in spread vs. surroundings (e.g., in particular the new 10Y benchmark PGB October 2034, on which we expect some supply pressure in the next few months).
- In the last two months PGB June 2038 has weakened vs. surrounding PGBs. The butterfly vs. PGB October 2035 and PGB Apr 2042 is now at 7-8bp, close to its maximum historical level, particularly when compared to the 10Y-15Y-20Y performance of other semi-core curves (e.g., France). In that sense, we see value in the box of butterflies POR-FR 10Y-15Y-20Y.
- From a more strategic perspective, in a general context of solid performance of the PGB curve vs. other European sovereign curves, thanks to the recent weakness of the longer part of the PGB curve and the general steepness of the 10Y-30Y peripheral curves vs. core ones, we believe there is still room for further tightening of PGBs in the 20Y area vs. the semi-core space (e.g., France and Belgium) or in the credit fly vs. Italy and semi-core.