SPAIN AUCTION PREVIEW: On offer next week

German flash January HICP came in slightly below consensus on the yearly rate but in line on the monthly sequential print, at +3.1% Y/Y (vs +3.2% cons; +3.8% prior) and -0.2% M/M (vs -0.2% cons; +0.2% prior).

• CPI printed slightly below analyst forecasts coming into the session at +2.9% Y/Y (vs +3.0% cons; +3.7 prior), with the NSA monthly rate a touch above expectations, at +0.2% M/M (vs +0.1% cons and prior). Both of those were in line with MNI's estimates following most of the state-level CPI prints this morning.
• Core CPI (ex-energy/food) came in at +3.4% Y/Y (vs +3.5% prior).
• As expected, the energy category partly reversed its base-effect induced rise from last month, deflating at -2.8% Y/Y (vs +7.7% prior), regardless of the recent CO2 price increase.
• However, services inflation ticked up at +3.4% Y/Y (vs +3.2% prior), as suggested by earlier state-level data. This is in part due to the rise in restaurant VAT from January.

A quick review of expectations for the upcoming Quarterly Refunding Announcement (0830ET/1330GMT) - our full preview is here (PDF link):

• Coupon Size Increases: Virtually all analysts whose previews we have seen expect a similar increase across coupon sizes focused on the shorter-end as seen in the November round. Recall that at the November refunding, sizes were upped $3B for 2Y and 5Y, $2B for 3Y and 10Y, $1B for 7Y and 30Y, and no change to 20Y. This would mean a Feb refunding month total of $306B in coupons (up $30B from Nov), and $324B in May. See table below.
• Low Financing Estimates Mainly Seen Impacting Bills: Treasury's announcement Monday that it projected $760B of net borrowing in the Jan-Mar quarter (a drop of $55B from the previous estimate) followed by $202B for the Apr-Jun quarter represented a downside surprise, on the order of $250-300B for the two quarters compared to the analyst expectations we'd seen. Overall though there was no impact on expectations for coupon upsizings at Wednesday's refunding announcement - though it probably reduced the chances of upside surprises. The main impact is seen on net bill issuance, which is seen as even more firmly negative going forward.
• Buybacks: Treasury is expected to announce the start of a buyback program which will include cash management repurchases and liquidity management operations (maximum $120B each annually - some details here). There is some debate about when the program will actually begin, however: either in the upcoming quarter, or the quarter starting in May.
• Guidance: It's widely expected Treasury will stick to its guidance from the November statement and say that it expects this quarter (Feb-Apr) to represent the last increase of coupon sizes.

Source: MNI