BOC: Instant Answers From Bank of Canada Decision

No relevant data Monday, resumes Tuesday with February PPI Final Demand MoM (1.0%, 0.9%); YoY (9.7%, 10.0%).

• FOMC rate announcement Wednesday, .25bp hike expected w/small chance of 50bp. Knock-on effect of Russia war in Ukraine adding to uncertainty over pricing in forward guidance expectations in Eurodollar futures: inversion between Red Sep'23 (97.47) and Red Dec'23 (97.51).
• Early optimism over Russia/Ukraine peace talks took a hit ahead the NY open after round of Kremlin headlines (particularly: KREMLIN SAYS: ALL THE PLANS OF RUSSIA IN UKRAINE WILL BE FULFILLED IN FULL AND IN THE TIME FRAMES OUTLINED, Rtrs) weighed on stocks, Gold bounced.
• US National Security Advisor Jake Sullivan meets with China’s Director of the Central Foreign Affairs Commission General Office Yang Jiechi meet in Rome. The two are set to discuss the ‘regional and global security’ implications of the Russia-Ukraine War.
• There has been significant concern emanating from Washington, D.C., over the weekend that China may seek to provide military and economic assistance to Russia. Uncertainty as to whether this potential action would bring about Western sanctions on China, risking a deep schism in the global economy between US or Chinese-aligned nations.

Germany will come to the market on Tuesday to sell E5.5bln of the new on-the-run Schatz.

• On offer will be the 0% Mar-24 Schatz. ISIN: DE0001104875
• Auction history: This will be the first reopening of the new 2-year Schatz, which was launched on February 1 to replace the 0% Dec-23 Schatz (ISIN DE0001104867). The launch saw E6.0bln issued (E4.846bln allotted) at an average yield of -0.500%. The launch was technically uncovered with a bid-to-cover of 0.97x (the bid-to-offer was 1.20x).
• Previous issue: Germany launched the 0% Dec-23 Schatz on November 9 last year also for E6.0bln. The Schatz has since been reopened twice, once in the first week of December and January. These auctions issued E4.0 and E5.0bln, with E3.28bln and E3.96bln allotted respectively. The December auction saw an average yield of -0.710% and the bid-to-cover was 1.11x (bid-to-offer 1.36x), whilst the January auction saw an average price of -0.620%, resulting in a bid-to-cover of 1.56x and a higher bid-to-offer of 1.97x.
• Market colour: Schatz yields are around 55bp off the lows seen a week ago (at -0.335% at writing). This is the highest level since mid-February (with a peak of -0.218% on February 7). The recent move was initially on the back of soaring commodity prices and sanctions being placed on Russian and was intensified by a more hawkish than expected ECB meeting last week. Markets now price over a 90% probability that the deposit rate will be back to 0% by the end of this year.
• Timing: Results will be available shortly after the auction closes at 10:30 GMT / 11:30 CET.