GERMANY: Leading Institutes See Debt Brake Loosening Impact Starting 2026
Apr-10 09:30
The German GDP growth forecasts of a research institute collective published today were downwardly revised for 2025 versus the projections made in September (-0.7pp to +0.1%).
- The revision was to be expected as some of the individual institutes had previously published their new estimates (and the new forecast was noted in sources reports earlier this week).
- For 2026, the forecast (by the 'Gemeinschaftsdiagnose' group consisting of 5 leading German economic research institutes including IFO) was unchanged at 1.3%; however, the level of projected nominal GDP in 2026 will be lower following the 2025 revision of course.
- The collective forecasts - which now broadly match the individual institutes' estimates - show that the group is pessimistic on not only the short-term but also structural German economic conditions. The assumptions they made on US tariffs appear to broadly represent the current stance after yesterday's pullback judging by the press statement.
- On military and infrastructure spending, for 2026 the institutes expect "additional expenditure of around E24bln combined with an expansion impulse of around 0.5 percentage points" for GDP on the back of the recent debt brake loosening - while for 2025, they see "hardly any additional funds" being called up.
- Private sector consensus for German real GDP growth broadly mirrors the institutes' assessment and stands at +0.1% for 2025. It was also downwardly revised by -0.2pp during the last three months. The German government projected 2025 growth at 0.3% in January.
| 'Gemeinschaftsdiagnose' Institutes - German GDP Growth, % Y/Y | 2024 | 2025 | 2026 |
| September 2024 Actuals/Projections | -0.1 | 0.8 | 1.3 |
| March 2025 Actuals/Projections | -0.2 | 0.1 | 1.3 |
| Forecast Revision | -0.1 | -0.7 | 0.0 |
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GILTS: Either Side Of Unchanged Given Mixed Offsore Inputs
Mar-11 09:29
Gilt yields either side of unchanged as the late Monday rally in U.S. Tsys is countered by fresh weakness in Bunds as hopes surrounding a German fiscal accord being struck in the immediate term rise once again.
- Futures -15 at 92.14 last.
- Recent gains in the contract appear corrective from a technical standpoint, with the bear mode remaining intact.
- First support at Friday’s low (91.67), while Friday’s high (92.63) continues to present initial resistance.
- Yields 1bp lower to 1bp higher, curve twist steepens.
- The 10-Year gilt/Bund spread is on track for its first sub-180bp close since September (last ~5bp tighter on the day at ~176bp), with German fiscal expectations continuing to drive cross-market moves.
- Next support of note in the spread located at 175bp, which protects the 76.4% retracement of the July ’24 to December ’24 widening (174.5bp).
- Books are open on the new 1.875% Sep-49 I/L gilt. We pencil in a GBP4.0bln size, although we see risks of the transaction being upsized to GBP4.5bln and expect books to close at 10:00 GMT.
- BoE-dated OIS little changed on the day, showing a little over 55bp of cuts through December.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.456 | +0.1 |
May-25 | 4.266 | -18.9 |
Jun-25 | 4.197 | -25.7 |
Aug-25 | 4.053 | -40.1 |
Sep-25 | 4.009 | -44.6 |
Nov-25 | 3.912 | -54.3 |
Dec-25 | 3.881 | -57.4 |
EURIBOR OPTIONS: Put Spread buyer
Mar-11 09:24
ERH6 97.62/97.50ps, bought for 3.75 in 5k.
GERMAN AUCTION PREVIEW: 2.20% Mar-27 Schatz
Mar-11 09:24
This morning, Germany will hold its fourth Schatz auction of the year. On offer will be E4.5bln of the 2.20% Mar-27 Schatz.
- The E4.5bln size is in line with the last Schatz auction on February 18.
- Recent Schatz auctions have passed smoothly, with solid bid-to-covers (in a 2.09x to 2.81x range since August), bid-to-offers (1.69x to 2.17x range since August) and the low prices above the secondary market mid-prices throughout 2024/5 (low price equal to mid-price on the last Schatz auction in February, but the auction passed smoothly).
- For the last Schatz auction on 18 February, the bid-to-cover stood at 2.68x, while the bid-to-offer came in at 2.11x.
- The fiscal situation in Germany is characterized by some uncertainty at the moment as an announcement on additional military and infrastructure spending last week saw German yields jump across the curve - however, for the announced deal to pass, approval from party "the Greens" is likely needed, who today have mentioned they are ready to negotiate after rejecting the initial CDU/CSU/SPD draft proposal earlier. We'd expect today's auction to pass smoothly nonetheless.
- Schatz positioning currently is short (indeed there is short positioning across the German curve) see our latest Europe PI below.
- The next German auction will be tomorrow's E4.5bln of the 2.50% Feb-35 Bund (ISIN: DE000BU2Z049), while the 2.20% Mar-27 Schatz will be reopened next on April 1, for another E4.5bln.
- Timing: Results will be available shortly after the bidding window closes at 10:30GMT / 11:30CET.
