GERMANY: Die Linke's Rise Could Impact Prospect Of Debt Brake Reform
One of the most notable political developments in the final weeks of the federal election campaign has been the rise of the far-left progressive Die Linke ('The Left'). Having polled at or below the 5% electoral threshold for almost the entirety of the last parliamentary term, Die Linke has climbed to an average of 6.8% in the last week of the campaign and looks on course to retain seats in the Bundestag.
- Given the intricacies of the German electoral system, a greater number of parties crossing the threshold and winning representation dilutes the seat totals of other parties. With Die Linke seemingly set to retain their seats, focus will be on the pro-business liberal Free Democrats (FDP) and far-left nationalist Sahra Wagenknecht Alliance (BSW) as to whether they get 5% of the vote. Polling shows the FDP average over the past two months holding steady at ~4%, while the BSW has fallen from an average of 6.7% in late December to 4.6% in the week ending 19 Feb.
- Die Linke would usually be viewed as a supporter of debt brake reform (and indeed removal). However, given that the incoming gov't (of whatever complexion) may seek to reform the debt brake to allow for increased defence spending, the pacifist Die Linke could vote against such efforts.
- With a two-thirds majority needed, a Bundestag with a sizeable Alternative for Germany (AfD) presence, Die Linke and the FDP could see a blocking minority emerge.
Germany election preview attached:
MNIPOLITICALRISK-GermanyElectionPreview.pdf
Chart 1. Federal Election Opinion Polling Weekly Average, %
Source: GMS, FGW, Wahlkreisprognose, YouGov, Infratest dimap, INSA, Forsa, Verian, MNI
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BUNDS: Look to close the opening gap
Schatz Swap related trade, suggest Payer:
- DUH5 ~5.3k at 106.62.
In outright futures, Bund still look at closing the opening gap to 131.76.
CANADA DATA: MNI CPI Preview: An Added Complication Amidst Tariff Fears
We have published and e-mailed to subscribers the MNI Canada CPI Preview ahead of today's release, with a particularly wide range to analyst estimates owing to uncertainty over when a temporary tax holiday will have greatest impact.
Please find the full report here.
EGBS: Bunds Weaken Alongside USTs As Markets Digest Trump Inauguration
Bund futures have weakened through the morning, with the weaker-than-expected German ZEW survey providing little reprieve. Futures are -2 ticks today at 131.82.
- Fallout from US President Trump’s inauguration remains a key focus, with Bunds having moved away from overnight highs alongside Treasuries as markets assess the President’s jawboning around tariffs. Today's EGB supply developments will have also factored into price action.
- Bund futures have entered a corrective phase following the recovery from the January 14 lows, and a continuation higher would open 132.41, the 20-day EMA. The medium-term trend is unchanged though, it remains bearish.
- The German curve has twist flattened, with 2-year yields 1bp higher and 30-year yields 2.5bps lower.
- Orderbooks for today’s 15-year OAT syndication are in excess of E135bln, a record size for a French transaction. MNI expect a size of E5-8bln, with upside risks of E9-10bln.
- Lithuania are also holding a dual-tranche syndication today, while Germany has held a conventional green Bund auction.
- Spain has issued a mandate for a new 10-year Obli. We pencil in a transaction size of E10-15bln.
- 10-year peripheral spreads to Bunds are within 1bp of yesterday’s closing levels.
- ECB dove Centeno is scheduled to speak at 1100GMT/1200CET.
