GERMANY: Leader-Level Coalition Negotiation Group Meets For 1st Time
The 19-member main negotiating group will meet for the first time this afternoon as the centre-right Christian Democratic Union/Christian Social Union (CDU/CSU) and centre-left Social Democratic Party (SPD) continue efforts to try and reach a coalition agreement. Following weeks of work in smaller issue and department-specific working groups, these will be leader-level talks and include chancellor-in-waiting Friedrich Merz (CDU), Markus Söder (CSU), and Lars Klingbeil and Saskia Esken for the SPD.
- Today's talks will take place at the SPD's HQ, Willy Brandt House, alternating in location with the CDU's Konrad Adenauer House and the Representation of Bavaria in Berlin. The talks will remain confidential and are set to resume early next week given the scale of differences still evident on tax and migration policy.
- Earlier, speaking on ARD Söder bluntly rejected the prospect of tax hikes, saying "We won't do that. We need tax cuts," but sought to downplay the risk of a collapse in talks by adding an agreement will be reached "absolutely. Not just because we have to, but also because we want to, I'm sure we'll succeed,".
- Following the 23 Feb federal election, Merz pushed the idea that a gov't should be in place by Easter (20 April), in what would represent a rapid agreement of terms between the two main political rivals. However, he has not spoken of this deadline recently, potentially indicating that negotiations may need to be extended. During this period, Chancellor Olaf Scholz's gov't remains in its caretaker position.
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GILTS: Off Highs After Futures Pierce Initial Resistance
Gilts are off highs after rallying alongside wider core global FI markets during the European morning.
- The uptick gained momentum as gilt and Bund futures broke through their respective Tuesday highs, although there was no clear headline catalyst driving the rally.
- M5 futures pierced initial resistance at the Feb 13 high (93.39), with the contract topping out at 93.51 before fading back to 93.35.
- Fresh extension higher would target the Feb 6 high & bull trigger (93.83). A break there would reignite bullish momentum.
- Yields 1.5-3.0bp lower, curve flatter.
- The 10-Year UK/German yield spread is close to its ’25 closing low (203.8bp), with a post-election increase in odds of near-term German fiscal support driving spread tightening week-to-date.
- GBP STIR pricing little changed on the day, with 57bp of cuts showing through year-end.
- ~20bp of cuts priced through May, with the next full 25bp move discounted through the end of the June MPC.
- Little of note on the UK data calendar today,
- BoE dove Dhingra will speak on “Trade fragmentation and monetary policy” from 16:30 GMT, don’t expect a change in tone after she reaffirmed her dovish stance earlier in the week (pushing back against the idea of gradual cuts given her view on consumption).
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.447 | -0.8 |
May-25 | 4.254 | -20.0 |
Jun-25 | 4.187 | -26.8 |
Aug-25 | 4.046 | -40.9 |
Sep-25 | 3.993 | -46.1 |
Nov-25 | 3.910 | -54.5 |
Dec-25 | 3.882 | -57.3 |
EGBS: Bund Futures Strengthen Alongside European Equities; Spreads Tighten
Major EGB futures have strengthened this morning with no obvious catalyst. A renewed fall in natural gas futures (-4% today) will have helped limit retracements over the last 90 minutes, even in the presence of modest 15-year Bund supply.
- Bund futures are +24 ticks at 132.72, through the Feb 21 high of 132.60. Recent gains still appear corrective for now, but clearance of key near-term resistance at 132.97 (Feb 13 high) would signal a reversal. Support is seen at the Feb 19 low (131.96).
- The German curve has bull flattened, with 30-year yields down 2.5bps.
- Today ‘s 15-year Bund auction passed smoothly.
- European equity futures are also higher, facilitating a tightening of 10-year EGB spreads to Bunds. The BTP/Bund spread is 1bp narrower at 111.5bps, after mechanically widening on the back of a BBG benchmark BTP roll earlier this week.
- Regional focus remains on tomorrow’s data calendar. Which includes Spanish flash February inflation.
GERMAN AUCTION RESULTS: 15-Year Bunds
| 0% May-36 Bund | 1.00% May-38 Bund | |
| ISIN | DE0001102549 | DE0001102598 |
| Total sold | E500mln | E1.5bln |
| Allotted | E401mln | E1.253bln |
| Previous | E0.408bln | E0.438bln |
| Avg yield | 2.51% | 2.60% |
| Previous | 2.34% | 2.42% |
| Bid-to-offer | 2.15x | 2.36x |
| Previous | 3.98x | 4.81x |
| Bid-to-cover | 2.68x | 2.83x |
| Previous | 4.87x | 5.49x |
| Avg price | 75.75 | 82.29 |
| Low price | 75.73 | 82.27 |
| Pre-auction mid | 75.702 | 82.235 |
| Prev avg price | 76.46 | 83.57 |
| Prev low price | 76.46 | 83.57 |
| Prev mid-price | 76.386 | 83.529 |
| Previous date | 09-Oct-24 | 04-Sep-24 |
