GERMANY: 'Germany' Coalition Seen As More Likely Than 'Kenya' By Bettors
Political betting markets continue to show a 'grand coalition' between the centre-right Christian Democratic Union (CDU) and the centre-left Social Democrats (SPD) as the most likely election outcome. Data from Polymarket assigns a 54% implied probability that the two will form the next gov't after the 23 Feb federal election. In something of a shift, Polymarket now shows a 'Germany' coalition formed by the CDU, SPD and pro-business liberal Free Democrats (FDP) as the second-most likely coalition formation with a 17% implied probability, ahead of the 'Kenya' coalition of the CDU, SPD and Greens with a 16% implied probability and a 'Kiwi' coalition of the CDU and Greens on just 4.9%.
- The shift in sentiment towards a 'Germany' coalition (so-called as the party's colours match those of the German flag) is somewhat surprising given that opinion polling has consistently shown the FDP struggling to cross the 5% electoral threshold.
- Historically, the CDU has been more inclined to work with the FDP than the Greens. However, in a televised debate on 16 Feb, CDU chancellor candidate Friedrich Merz when pressed on who he could see as potential partners replied “Possibly the Social Democrats, possibly the Greens", adding “I have great doubts about the FDP," potentially due to the party's reticence on relaxing debt rules to fund defence spending.
Chart 1. Betting Market Implied Probability 'Which coalition will form the next German government?', %
Source: Polymarket
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STIR: A Little Over 60bp Of BoE Cuts Priced For '25, Tariff Headlines Dominate
GBP STIRs away from hawkish session extremes on the headlines playing down the likelihood of imminent tariffs from the Trump administration.
- That leaves 61.5bp of BoE cuts priced through year-end vs. ~64bp early today and ~59bp at one stage this afternoon.
- A reminder that ~36bp of cuts were briefly priced through year-end late last Tuesday.
- The next 25bp cut is still fully discounted through the end of the March MPC meeting, with ~21.5bp priced for next month.
- SONIA futures last flat to -3.0.
- UK labour market data is due first thing tomorrow (07:00 London), expect our full preview of that release shortly.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Feb-25 | 4.485 | -21.5 |
Mar-25 | 4.440 | -26.0 |
May-25 | 4.310 | -39.0 |
Jun-25 | 4.260 | -44.0 |
Aug-25 | 4.175 | -52.5 |
Sep-25 | 4.151 | -54.9 |
Nov-25 | 4.102 | -59.8 |
Dec-25 | 4.086 | -61.4 |
EQUITIES: Large Estoxx outright call buyer
SX5E (21st Mar) 5600c, bought for 8 in 19k vs 1.33k at 5190.00.
EQUITIES: Large Commerzbank Call option trade
CBK (20th Jun) 18c, bought for 1.51 in 12.5k.
