Tap of Green Nether 2044: the sector has not repriced enough the French shock

On July 9 th , Netherlands will be tapping its Green 3.25% Jan 2044 ( NL0015001RG8 ) to raise an additional 1.5-2bn€ . This bond looks attractive on several measures. First, Netherlands bonds priced an increased liquidity premium, in the wake of French political risk after President E.Macron called for surprise snap elections, one month ago . However, our baseline scenario with a hung Parliament is consolidating ahead of the 2 nd round of elections taking place next Sunday. Our estimate of French risk is declining and the 10Y OAT-Bund spread is now trading in our fair value range ( 65-70 bp s) ; therefore, we are biased to favor semi-cores like Nether and EU against Bund , as liquidity premium is not warranted anymore. Second , in the curve against 2034 and 2054, Nether 2044 looks cheap . In the long end part of the curve, the curvature of the curve has not repriced enough after the French shock, while the curvature around the Nether 2042 bond (cf. Graph 1) did. In ASW terms, the bonds cheapened recently, compared to its neighbors (cf. Graph 2). The green feature of Nether 2044 supports the buying opportunity. Finally, Netherlands delivered 75% of its funding program so far with 30bn issued and we expect no more issuance in the 15-20y sector for the rest of the year.