OPTIONS: Expiries for Mar26 NY cut 1000ET (Source DTCC)

Reuters reporting comments from the Kremlin spokesperson Dmitri Peskov confirming that US and Russian officials will hold further talks this week on “eliminating irritants in ties and on work of foreign missions”. 

• Peskov told reporters Russian President Vladimir Putin will make calls this morning to "infor[m] partners about talks with US”
• Reuters notes Peskov said ‘on Trump comments blaming Zelenskiy and Biden for war’: “We welcome and support new US approach to dialogue with Russia... We hope US will fully analyse root causes of Ukraine conflict… We hope this will help towards a settlement”.
• On the EU, Peskov said: “European approach contrasts with efforts we're making with peace efforts we're making with Americans… we don't see any possibility to renew dialogue with Europe at the moment.”
• Peskov said on German elections: “Russia hopes for more sober approach to reality and issues of mutual interest.”
• The comments come ahead of another key week of Ukraine diplomacy with French President Emmanuel Macron (today) and UK Prime Minister Keir Starmer (Thursday) both in Washington for bilateral meetings with President Trump.  
• Macron said on X: “I'm going to tell [Trump]: 'You can’t be weak in the face of President Putin. It’s not you, it’s not your trademark, it’s not in your interest. How can you then be credible in the face of China if you’re weak in the face of Putin?’”
• Macron and Trump will deliver a joint press conference at the White House at 14:00 ET 19:00 GMT. 

In line with expectations, the conservative Christian Democratic Union (CDU) and its allies in the Christian Social Union have secured a plurality in the Bundestag with 208 of 630 seats in the 23 February federal election. The CDU is now in a strong position to form a 'grand coalition' with the centre-left Social Democrats (SPD). The SPD fell from first to third place, enduring its worst-ever post-war election result winning just 120 seats (down 86). 

• A prospective 'GroKo' would carry 328 seats, above the 315 majority threshold. It would be the smallest grand coalition to govern Germany, but for CDU leader Friedrich Merz a narrow majority is likely preferable to a tripartite 'Kenya' coalition that includes the environmentalist Greens (85 seats, down 33).
• The most notable outcomes of the election came on the extreme wings of the political spectrum. The far-right Alternative for Germany (AfD) scored its best-ever result with 152 seats on 20.8% of the vote. This was widely expected, with a strong AfD performance indicated in opinion polls in the months leading up to the campaign. On the other side of the spectrum, the far-left progressive Die Linke (The Left) exceeded expectations, securing 64 seats on 8.8% of the vote.
• Focus during the vote count was on the prospect of a 'blocking minority' forming opposed to debt brake reform. One-third (210) seats needed to block. The AfD is anti-reform. Die Linke is opposed to funds being used for military spending. However, Linke's opposition to voting with the AfD and support for broader fiscal loosening is likely to mean its lawmakers do not vote down a reform amendment.
• The far-left nationalist Sahra Wagenknecht Alliance (BSW) secured 4.97% of the vote, failing to cross the 5% threshold by the narrowest of margins. The pro-business liberal Free Democrats also fell out of the Bundestag, losing all 91 of its seats after winning just 4.3% of the vote.

Chart 1. 2025 Federal Election Result, Seats

Source: Federal Returning Officer, MNI

Following some volatility at the open, 10-year Bund yields are now little changed on the session at 2.47% as markets digest the outcome of yesterday’s German election. The February German IFO survey was mixed versus expectations, and had limited market impact. As such, 10-year EGB spreads to Bunds are within 0.5bps of Friday's closing levels.

• The 10-year BTP/Bund spread is currently 108bps, in the middle of this morning’s 107-109bp range. The spread widened away from a year-to-date low of 104bps last week on the back of a hawkish interview from ECB’s Schnabel and a corresponding pullback in European equities.
• Note: Some tickers show a mechanical widening in the BTP/Bund spread this morning, with the 3.65% Aug-35 BTP replacing the 3.85% Feb-35 BTP.  BBG’s {WB} page still references the latter BTP for now.
• The 10-year RAGB/Bund spread remains at 41bps, after Moody’s affirmed Austria’s sovereign rating at Aa1 (outlook stable) on Friday. While the agency referenced ongoing political and fiscal uncertainty following the September election, they still “expect that fiscal consolidation and stabilization of government debt will be the focus of future Austrian governments”. Talks around forming a centrist alliance to govern continued to progress over the weekend.