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GERMANY COMES TO MARKET TODAY FOR A TAP OF EUR4bn

GERMAN AUCTION PREVIEW

Germany comes to market on Wednesday for a tap of EUR4bn. On offer is the 0% Aug-30 Bund.

  • BACKGROUND: The 0% Aug-30 Bund serves as the 10-year benchmark and this will be the third auction this year. At the last tap on 15 July, E4.14bn was allotted at an average yield of -0.46%, Buba cover of 1.80x and bid-to-cover of 1.48x.
  • RV/HISTORY: Despite a slew of risk positive developments in recent weeks (an agreement on an EU recovery fund, tentative signs of a pickup in economic activity across Europe and, more recently, Russia's announcement that it has registered a coronavirus vaccine), bunds have yet to decisively breakaway from the bull flattening theme that has been broadly in place since the beginning of the year. Concerns about a second wave of the coronavirus across the region, heightened economic uncertainty and expectation of continued monetary expansion from the ECB has kept the entire bund curve in negative yield territory. The 0% Aug-30 Bund currently trades at a yield of -0.4714% off a multi-month low of -0.553% on August 4 and 28bp inside the comparable EUR swap. August seasonality may be a factor of consideration for today's auction. There is little in the way of EGB supply this week with just Germany and Italy coming to market. Eurozone industrial production data for June will be published ahead of the auction, but we do not expect this to be market moving.
  • TIMING: Results are due out shortly after the auction closes at 1030BST.

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