Market Flash: Government Bond Auction Results_4 Apr 2014

Results: SPK 10/21 New Issue A biddish SPK tender. Today’s 7.5-year SPK new issue auction saw very strong demand with a bid-to-cover (BTC) of 3.399, the highest since Jan 2012 of all government bonds auctions. Market participants likely attracted by the success of the previous 10-year SPK auction which rallied by ~30bps within a month after the tender. Although with strong demand, some bids were likely opportunistic hopeful of a long tail auction and then a repeat of subsequent re-pricing in the secondary market. Given the average auctioned yield of 4.345% (within pre-auction WI 4.35/4.30%), we think a huge post-tender rally for this SPK 10/21 is rather limited (unless accompanied by a huge MGS rally) as the paper has been fairly priced at around 30bps over MGS, in our view.  Going forward the fair valuation on SPK should fall in the region of 25-30bps over MGS, and we recommend investors to take profit if the yield tightens to below 25bps over MGS. Meanwhile, the range of successful yields were narrower (4.362% highest, 4.138% lowest) which equally reflects the keen demand with a much tighter range of 4.4 bps versus 15bps in the previous 10-year SPK auction. A better price discovery signifies less opportunity to profit from mispricing. Bid to cover:      3.399 Highest yield:     4.362% Average yield:    4.345% Lowest yield:     4.318%

Cut off:              38%