1.00% May-38 Bund

On offer today: Germany will launch the new 1.00% May-38 Bund (ISIN: DE0001102598) via auction this morning for E2bln.

• The new 15-year Bund will be the first German new issue since 2019 to have a coupon that is not zero. It will replace the 0% May-36 Bund as the on-the-run 15-year Bund.
• Yields on the 0% May-36 Bund have been in positive terriotory throughout this year and had rose from close to 0% to 0.40% by mid-February before falling back to close to 0% at the beginning of the Ukraine war and have since moved at high at 1.086% over the past 10 days, and at the time of writing yields are around 0.97%.
• We would expect the spread over the 0% May-36 to be around 4-5bp given that the spread between the similar-couponed 4.00% Jan-37 and 4.25% Jul-39 is around 3.1bp at writing. The 4-5bp spread would allow some discount for the new issue given that it will be on the run.
• Based on prevailing market pricing, this would see yields of just over 1.00% for the 1.00% May-38 Bund.
• The last auction of the 0% May-36 Bund in February saw a bid-to-cover of 2.32x and bid-to-offer of 2.72x. However, the January auction was only just technically covered and all of the auctions in H2-21 were technically uncovered.
• Timing: Results will be available shortly after the auction closes at 10:30 BST / 11:30 CEST.