Investment Research
13 October 2015
FI Strategy
Tap in PGB 25s/37s – steep curve and auction concession
On Wednesday 14 October, the Portuguese Treasury and Government Debt Agency
(IGCP) will tap EUR1.00-1.25bn in the PGB Oct-25 and the PGB Apr-37. The deadline
for bids is 11:30 CET (10:30 local time). Danske Bank is the primary dealer in Portugal.
Recent research on Portugal
Tap in 6Y Portugal – best carry/roll on the
curve, 26 May
The Portuguese IGCP is well ahead with this year’s funding, with EUR17.5bn printed
year to date. IGCP communicated in its Q4 funding outlook that it would hold one or two
tap auctions this quarter bringing gross issuance this year to around EUR20bn. Monthly
PSPP purchases amount to EUR1.1bn. Hence, net supply adjusted for PSPP purchases
will be negative for the remainder of the year. Note also that the redemption of the
PGB Oct-15 is due this week, implying that EUR5.4bn will be returned to investors.
Use Portuguese switch to extend on PGB curve,
23 April
S&P ‘positive’ on Portugal - focus turns to Fitch
on Friday, 23 March
QE impact - ‘direct demand effect’ and ‘hot
potato effect’, 24 February
Portugal tapping the 10Y on Wednesday, 24
February
We prefer the PBG Oct-25s to the Apr-37s in the upcoming auction. Portugal has again
cheapened substantially following the auction announcement. The PGB Oct-25 is looking
attractive, relative to Spain for instance. It is trading around 65-70bp above the SPGB
Apr-25 which is a tad above the yearly average (see chart). This pattern is similar in the
37s, although less pronounced.
10Y Portugal attractive ahead of this week’s
auction, 11 February
Periphery business cycle monitor, 10 February
SMP holdings and cap effects on Portugal,
Ireland and Greece, 28 January
Portugal has performed well recently in line with the rest of the periphery. The market
speculation over possible QE2 and the overall improved risk sentiment have supported
PGBs. The PGB Oct-25s are trading very close to the YtD average both relative to
Germany and swaps but at an attractive level vs Spain.
Portugal issuing new 10Y and new 30Y PGB, 12
January
Use Portuguese switch to extend on the curve, 25
November 2014
Portugal tapping PGB Feb-24, 11 Nov 2014
The Portuguese curve remains very steep relative to peers. The very short end is still
relatively rich while the curve remains very steep out to the 10Y point. Longer-dated
supply this year has contributed to this. This year the IGCP has lifted the average maturity
for issuance to 12.9 years.
PGBs again cheapen on auction announcement
Portugal: A ‘positive’ stand from S&P likely on
Friday, 6 November 2014
Portugal: Recovery still intact, 30 October 2014
Portuguese and peripheral supply move out the curve
Average maturity on issuance
Years
14
Italy
Portugal
Spain
12
10
8
6
4
2
-
2010
Source:, Danske Bank Markets
2011
2013
2014
Source: Macrobond Financial, Bloomberg, Danske Bank Markets
Portugal is on the doorstep to investment grade. The Portuguese recovery is becoming
increasingly broad based with GDP increasing 1.5% y/y during the past three quarters.
Fundamentals are broadly in line with Italy and the two-notch rating gap seems
unjustified, in our view. Portugal is set to be the biggest beneficiary from the ECB’s QE.
Important disclosures and certifications are contained from page 5 of this report.
2012
Chief Analyst
Anders Møller Lumholtz
+45 45 12 84 98
[email protected]
www.danskeresearch.com
2015
FI Strategy
PGB Oct-25s cheapened on the announcement
PGB curve very steep out to 10Y
Portuguese govt. - yyasw 6m
200 bps
Italian govt. (BTPS) - yyasw 6m
Spanish govt. - yyasw 6m
150 bps
100 bps
50 bps
Dotted curves are 9 March at QE start
0 bps
-50 bps
0
5
10
15
20
Maturity (years)
25
Source:, Danske Bank Markets
Source: Macrobond Financial, Bloomberg, Danske Bank Markets
PGB Oct-25s looking attractive relative to SPGBs
Similar picture in 37s - although less pronounced
Source:, Danske Bank Markets
Source: Macrobond Financial, Bloomberg, Danske Bank Markets
Carry/roll, 12M
Carry/roll, 12M bpv scaled
carry & roll, 12M
400bp
Ex. swap
Inc. swap
PGB Oct-25
PGB Apr-37
350bp
carry & roll 12M, per bpv
35
Ex. swap
Inc. swap
60bp
50bp
300bp
40bp
250bp
30
PGB Oct-25
30bp
200bp
PGB Apr-37
150bp
20bp
100bp
10bp
50bp
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Oct-23
Oct-24
Oct-25
Oct-26
Oct-27
Oct-28
Oct-29
Oct-30
Oct-31
Oct-32
Oct-33
Oct-34
Oct-35
Oct-36
Oct-37
Oct-38
Oct-39
Oct-40
Oct-41
Oct-42
Oct-43
Oct-44
Source:, Danske Bank Markets
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Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Oct-23
Oct-24
Oct-25
Oct-26
Oct-27
Oct-28
Oct-29
Oct-30
Oct-31
Oct-32
Oct-33
Oct-34
Oct-35
Oct-36
Oct-37
Oct-38
Oct-39
Oct-40
Oct-41
Oct-42
Oct-43
Oct-44
0bp
0bp
Source: Macrobond Financial, Bloomberg, Danske Bank Markets
www.danskeresearch.com
FI Strategy
Portugal - rating upgrade requirements
Source: Rating agencies
Rating cycle has turned – Portugal on the doorstep to
investment grade...
...and Portuguese debt trajectory looks better than Italy’s
Source: Macrobond Financial, Danske Bank Markets
Source: Bloomberg, Danske Bank Markets
Employment is increasing...
...and the current account deficit is gone
Source: Macrobond Financial, Danske Bank Markets
Source: Macrobond Financial, Danske Bank Markets
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FI Strategy
Consumer confidence is bouncing in Portugal
Unemployment has fallen substantially
Source: Macrobond Financial, Danske Bank Markets
Source: Macrobond Financial, Danske Bank Markets
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FI Strategy
Disclosures
This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske
Bank’). The author of the research report is Anders Møller Lumholtz, Chief Analyst.
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in the research report.
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Portugal and may hold long or short positions in, or otherwise be interested in, the financial instruments
mentioned in this research report.
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Calculations and presentations in this research report are based on standard econometric tools and methodology
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