GERMANY: SPD Co-Leader Confirms Contact w/Merz 'Soon' On Gov't Talks Timetable
Following his election as chair of the centre-left Social Democratic Party (SPD) faction in the Bundestag, SPD co-leader Lars Klingbeil has confirmed that he and leader of the centre-right Christian Democratic Union (CDU) Friedrich Merz have agreed to speak soon in order to set up a timetable for coalition talks. Says "It is the SPD's will to achieve a functioning government" adding "it is also up to Merz".
- Disagreements between the CDU and SPD are already evident over a 'minor inquiry' put forward by the Union. Titled "Political neutrality of state-supported organizations" it asks 551 questions of non-profits that receive state funding. Some of these groups mobilised against Merz following the CDU voting alongside the far-right Alternative for Germany (AfD) on a motion in January related to asylum and immigration.
- The leader of the SPD's youth wing (Jusos) in the state of Thuringia has demanded the Union withdraw the inquiry before the SPD begins coalition talks.
- The actions of Jusos should not be discounted in influencing SPD policy. In 2018, Jusos national chair Kevin Kühnert led a vocal (if eventually unsuccessful) opposition to the formation of a 'grand coalition' with the CDU then led by Angela Merkel.
- With the SPD coming off the back of its worst election result in over a century, and Merz sitting to the right of Merkel in terms of economic and social policy, a Jusos-led opposition to a 'grand coalition' could pose obstacles, given that the approval of SPD grassroots members will be needed for any coalition deal.
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EGBS: 10-year RAGBs Underperform Semi-core Peers Following Syndication Mandate
The 10-year RAGB/Bund spread has widened ~2bps since this morning’s dual-tranche syndication mandate, now at 37bps. This leaves 10-year RAGBs underperforming semi-core peers (Netherlands, Ireland, Belgium, Portugal and France) intraday.
- The timing of Austria’s first syndication had been uncertain due to questions surrounding the budget outlook. MNI had looked for a transaction this week or in the first half of February – with a lean towards the latter.
- A new 10-year Feb-25 RAGB maturing 20 February 2035 will be launched alongside a tap of the 1.85% May-49 Green RAGB – in line with MNI’s expectations.
- A reminder that the EU decided not to proceed with an Excessive Debt Procedure on Austria earlier this month, after negotiators attempting to form a right-wing coalition presented a E6.4bln savings plan.
- On Jan 10, Fitch revised Austria’s outlook to Negative from Stable (rating affirmed at AA+).
- As of Q3 ‘24, the 4Q rolling sum of the budget balance was -3.7% of GDP (vs -3.3% in Q2). Both Bloomberg analysts and the EC expect the 2024 budget balance to print at -3.6% of GDP, down from -2.6% in 2023.
CROSS ASSET: MONTH END EXTENSION (update)
Looking at the UK, this looks to be a record Extension for the Month of January at least for Bloomberg (Used to be Barclays).
Bloomberg Bonds projected:
- US Tsys: +0.07yr (small, average).
- EU Govies: +0.10yr (decent).
- UK Govies: +0.23yr (HUGE).
MS Bonds:
- US Tsys: +0.05yr (small).
- EU Govies: +0.07yr (small, average).
- UK Govies: +0.17yr (LARGE).
