Highlights:
- Germany's CDU, SPD can form coalition, path open to debt brake reform
- Ukraine-US minerals deal in "final stages" of negotiation
- Dhingra set to speak on BoE monetary policy approach
US TSYS: Scaling Back Friday Highs, Lat Week PCE, GDP Data Focus
- Treasuries are trading moderately weaker, low end of narrow range as rates scale back a small portion of Friday's risk-off & data-driven rally.
- Treasury March'25 10Y futures are currently -5.5 at 109-16.5 (109-16L/109-21H), inside technical levels: initial resistance above at 109-24/110-00 (High Feb 21 / 7 and the bull trigger), support well below at 108-21.5 (Low Feb 19). 10Y yield +.0058 at 4.4371%, curves flatter: 2s10s -1.134 at 21.770, 5s30s -.378 at 40.051.
- Heavier volume despite Japan out on extended holiday weekend, ongoing quarterly futures roll from Mar'25 to Jun'25 (June takes lead this Friday), helps push TYH5 to 420k so far.
- Limited data today with regional Fed reporting (prior, est): Chicago Fed Nat Activity Index (0.15, -0.05) at 0830ET, Dallas Fed Mfg Activity (14.1, 6.4) at 1030ET. No scheduled Fed speakers.
- The upcoming US economic calendar is backloaded, with the second release for Q4 national accounts on Thursday before the January PCE report on Friday. Real GDP growth is seen confirming what was at the time a softer than expected 2.3% annualized in Q4, whilst there will also be a first estimate for real GDI growth after 2.1% in Q3.
- US Treasury auctions resume $76B 13W & $68B 26W bill auctions at 1130ET, $69B 2Y Note auction (91282CMP3) at 1300ET.
- Cross asset update: Crude mildly higher (WTI +.08 at 70.48; Gold climbing 12.72 at 2948.75; Bbg US$ index little lower at 1285.86 (-.037).
GERMANY: CDU & SPD Can Form 'Grand Coalition'; Path Open For Debt Brake Reform
In line with expectations, the conservative Christian Democratic Union (CDU) and its allies in the Christian Social Union have secured a plurality in the Bundestag with 208 of 630 seats in the 23 February federal election. The CDU is now in a strong position to form a 'grand coalition' with the centre-left Social Democrats (SPD). The SPD fell from first to third place, enduring its worst-ever post-war election result winning just 120 seats (down 86).
- A prospective 'GroKo' would carry 328 seats, above the 315 majority threshold. It would be the smallest grand coalition to govern Germany, but for CDU leader Friedrich Merz a narrow majority is likely preferable to a tripartite 'Kenya' coalition that includes the environmentalist Greens (85 seats, down 33).
- The most notable outcomes of the election came on the extreme wings of the political spectrum. The far-right Alternative for Germany (AfD) scored its best-ever result with 152 seats on 20.8% of the vote. This was widely expected, with a strong AfD performance indicated in opinion polls in the months leading up to the campaign. On the other side of the spectrum, the far-left progressive Die Linke (The Left) exceeded expectations, securing 64 seats on 8.8% of the vote.
- Focus during the vote count was on the prospect of a 'blocking minority' forming opposed to debt brake reform. One-third (210) seats needed to block. The AfD is anti-reform. Die Linke is opposed to funds being used for military spending. However, Linke's opposition to voting with the AfD and support for broader fiscal loosening is likely to mean its lawmakers do not vote down a reform amendment.
- The far-left nationalist Sahra Wagenknecht Alliance (BSW) secured 4.97% of the vote, failing to cross the 5% threshold by the narrowest of margins. The pro-business liberal Free Democrats also fell out of the Bundestag, losing all 91 of its seats after winning just 4.3% of the vote.
Chart 1. 2025 Federal Election Result, Seats
Source: Federal Returning Officer, MNI
UKRAINE: Deputy PM-Minerals Deal w/US In 'Final Stages' Of Negotiation
Reuters reports comments from Ukraine's deputy prime minister claiming that Ukrainian and US negotiations 'are in the final stages' of talks regarding a minerals deal. Deputy PM claims that Kyiv 'offered to sign a deal in Washington, D.C., during a meeting of presidents'. Says that 'nearly all key details are finalised'. and that Kyiv is committed to completing a deal 'as swiftly as possible."
- Previously, President Volodymyr Zelenskyy and his administration had rejected the USD500B US deal for access to rare earth mineral rights in Ukraine, claiming that the amount demanded from the US was too high and that the lack of security guarantees in the event of Russia breaking a ceasefire was unacceptable.
- On 21 Feb, US President Donald Trump claimed that a deal was close, saying "I think we're pretty close, yeah. I think they want it. They feel good about it. And it's a significant, it's a big deal, but they want it and it keeps us in that country and they're very happy about it,"
- The rejection of the minerals deal earlier in Feb when Treasury Sec Scott Bessent travelled to Kyiv did not go down well at the White House, with Trump strongly criticising Zelenskyy in social media posts amid the lack of progress on a minerals deal and after Zelenskyy referred to Trump as "living in a disinformation space".
EUROPE ISSUANCE UPDATE
EU-bond auction results
- E2.392bln of the 2.875% Dec-27 EU-bond. Avg yield 2.329% (bid-to-cover 1.59x).
- E2.277bln of the 3.375% Oct-39 EU-bond. Avg yield 3.284% (bid-to-cover 1.34x).
Belgium auction results
- E711mln of the 2.70% Oct-29 OLO. Avg yield 2.482% (bid-to-cover 2.32x).
- E1.28bln of the 3.00% Jun-34 OLO. Avg yield 2.932% (bid-to-cover 2.44x).
- E1.054bln of the 1.90% Jun-38 OLO. Avg yield 3.237% (bid-to-cover 2.38x).
STIR: OI Points To Mix Of SOFR Positioning Swings On Friday
OI data suggests that a mix of net short (SFRZ4) & long (SFRH5 through Z5) setting dominated in the very front end of the SOFR futures strip on Friday.
- Positioning swings then became a little more balanced between net long setting and short cover further out the strip.
| 21-Feb-25 | 20-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,044,527 | 1,033,463 | +11,064 | Whites | +56,425 |
SFRH5 | 1,224,429 | 1,219,853 | +4,576 | Reds | -15,415 |
SFRM5 | 1,166,073 | 1,146,476 | +19,597 | Greens | +1,585 |
SFRU5 | 858,555 | 837,367 | +21,188 | Blues | +15,818 |
SFRZ5 | 996,069 | 990,614 | +5,455 |
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SFRH6 | 629,442 | 639,743 | -10,301 |
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SFRM6 | 674,060 | 672,934 | +1,126 |
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SFRU6 | 582,752 | 594,447 | -11,695 |
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SFRZ6 | 820,601 | 806,663 | +13,938 |
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SFRH7 | 449,943 | 452,928 | -2,985 |
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SFRM7 | 437,851 | 442,044 | -4,193 |
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SFRU7 | 300,392 | 305,567 | -5,175 |
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SFRZ7 | 350,513 | 346,285 | +4,228 |
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SFRH8 | 217,362 | 212,169 | +5,193 |
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SFRM8 | 190,399 | 186,187 | +4,212 |
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SFRU8 | 123,384 | 121,199 | +2,185 |
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GILTS: Little Changed As Offshore Cues Largely Offset, Roll Activity Dominates
Gilts remain locked in a narrow range, with offshore cues (Friday’s late rally in wider core global FI markets & feedthrough from the German election) mostly offsetting thus far.
- Futures continue to hover around 92.50, after stabilising around that level shortly after the open.
- The bullish technical cycle in the contract remains intact, although it has moderated.
- Initial resistance located at the 50-day EMA (92.83), while initial support comes in at the Feb 20 low (91.78).
- Yields ~1bp lower across the curve.
- Expect futures roll activity to continue to dominate ahead of Thursday’s first notice for H5, with estimates pointing to just over 26% roll completion at present.
- Comments from BoE’s Ramsden (13:15 GMT) and Dhingra (18:00 GMT) are due later today, with plenty of BoE-speak due throughout the week.
- BoE-dated OIS is little changed on the day, showing 52.5bp of cuts through year-end.
BUNDS: /SWAPS: Long ASW Narrow A Touch, Debt Brake Uncertainty Lingers Post-Elex
A tweak to the debt brake cannot be ruled out following the German election, explaining this morning’s ~0.5bpsnarrowing in long-dated German ASWs vs. 3-month Euribor.
- However, concessions that Die Linke may demand to support any debt brake modifications continue to cloud the German fiscal outlook and issuance picture, limiting initial market follow through.
- Ultimately, our political risk team believes that Die Linke's opposition to voting with the AfD and support for broader fiscal loosening is likely to mean its lawmakers do not vote down a debt brake reform amendment.
- As such, fundamentals continue to point towards further long-dated ASW spread tightening, but already short positioning and ongoing fiscal uncertainty may limit tightening moves in the near-term.
- Zooming out, continued restraint when it comes to defence spending risks the scorn of U.S. President Trump, which could place further pressure on Germany, both politically and economically.
Fig. 1: German Bund & Buxl ASWs Vs. 3-Month Euribor
Source: MNI - Market News/Bloomberg
US TSY FUTURES: CFTC CoT Shows Hedge Funds & Asset Managers Trimming Exposure
The latest CFTC CoT report revealed that both leveraged funds and asset managers covered a portion of the overall net exposure in the period ending February 18.
- Leveraged funds covered existing net shorts across all contracts barring WN futures, where they extended marginally on their existing short. The net short cover seen across TU through US futures summed to ~$22.7mln DV01, with ~$17.6mln of that coming via FV & TY futures. The cohort remains net short across all contracts.
- Asset managers trimmed net longs in all contracts outside of WN, building on an existing net long in the latter. The overall net positioning adjustment seen within the cohort was much smaller than what was seen amongst leveraged funds (~$11.9mln DV01 net longs were cut across TU through US futures, once again concentrated in FV & TY). The cohort remains net long across all contracts.
- Non-commercial net positioning (detailed in the image below) saw a mixture of short cover, short setting and long setting across contracts. Short cover in FV & TY dominated. The cohort remains net short in all contracts outside of US futures.
Source: MNI - Market News/CFTC/Bloomberg
FOREX: EUR Breathes Sigh of Relief on German Elections
- The smooth passage of the German election results has allowed markets to trade with a sense of normalcy after EUR came under pressure into the Friday close - but the victory for Merz' CDU/CSU and the likely formation of a coalition with the SPD has steered markets clear of any abrupt U-turns on policy - leaving the EUR to very modestly outperform this morning.
- January highs have capped the topside for EURUSD and broader bearish conditions continue to signal scope for a test of a significant cluster of support in EURJPY. For EURUSD, spot is edging lower and narrowing the gap to Friday’s close at 1.0459. A deeper reversal would place the focus on initial firm at 1.0401, the Feb 19 low.
- A sharp dose of equity selling at the European open has subsided, with the bounce off lows helping markets maintain their preference for JPY and CHF selling - with both currencies at the bottom of the G10 table today. The key for sentiment ahead remains the state of the Russia-Ukraine peace talks and the timing of a Putin-Trump meeting in Saudi Arabia.
- Schedules show both the French and UK leaders set to head to Washington this week, at which they'll look to assert Europe's interests and moderate Trump's divisive tone toward Moscow and Kyiv. Macron and Starmer's ability to do so could prove market-moving this week.
- Typically for a Monday, datapoints are few and far between, with just the Chicago and Dallas Fed national activity indices. As such, more focus may be paid to the ongoing BoE research conference, at which BoE's Ramsden and Dhingra are set to speak - with balance sheet policy a particular focus.
EQUITIES: Trend Direction in Eurostoxx 50 Futures Remains Upward
- The trend direction in Eurostoxx 50 futures remains up and last week’s climb to a new alltime high on the continuation contract, reinforces a bull theme. Note too that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 5574.57 next, a Fibonacci projection. Initial firm support to watch is 5379.97, the 20-day EMA.
- S&P E-Minis faded sharply off their recent highs last week. The move down appears corrective - for now - and a bullish theme is intact. Attention is on the key resistance at 6178.75, the Dec 6 ‘24 high. A break of this hurdle would resume the primary longer-term uptrend. On the downside, initial key near-term support has been defined at 6014.00, the Feb 10 low. A breach would highlight a bearish development and expose 5935.50, the Feb 3 low.
COMMODITIES: Bear Theme in WTI Futures Intact Following Recent Move Lower
- A bearish theme in WTI futures remains intact and the move lower last week, and today’s fresh short-term cycle low, reinforces a bear condition. Support at $70.20, the Feb 6 low, has been pierced. A clear break of it would strengthen the downtrend and confirm a breach of the 50-day EMA. This would open $67.75, the Dec 20 ‘24 low. Key short-term resistance has been defined at $74.06, the Feb 3 high. A move above this level would reinstate a bull theme.
- A bull cycle in Gold remains in play and the yellow metal continues to trade at its recent highs. Fresh recent highs once again confirm a resumption of the uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend. Sights are on the $2962.2, a Fibonacci projection. The first key support to watch is $2867.1, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 24/02/2025 | 1315/0815 |  CA | BOC Deputy Gravelle speaks on BOE panel at "The Future of the Central Bank Balance Sheet" conference | |
| 24/02/2025 | 1315/1315 |  GB | BOE's Ramsden and Saporta panellist on CB Balance sheet during QT | |
| 24/02/2025 | 1330/0830 | * | CA | Quarterly financial statistics for enterprises |
| 24/02/2025 | 1400/1500 | ** |  BE | BNB Business Confidence |
| 24/02/2025 | 1530/1030 | ** |  US | Dallas Fed manufacturing survey |
| 24/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 24/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 24/02/2025 | 1800/1800 | GB | BOE's Dhingra speech on state of the UK monetary policies | |
| 24/02/2025 | 1800/1300 | * | US | US Treasury Auction Result for 2 Year Note |
| 25/02/2025 | 0700/0800 | *** |  DE | GDP (f) |
| 25/02/2025 | 0920/0420 | US | Dallas Fed's Lorie Logan | |
| 25/02/2025 | 1000/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 25/02/2025 | 1100/1100 | ** | GB | CBI Distributive Trades |
| 25/02/2025 | 1300/1400 |  EU | ECB's Schnabel at BOE's Annual Conference on Balance Sheet | |
| 25/02/2025 | 1330/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
| 25/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 25/02/2025 | 1400/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 25/02/2025 | 1400/0900 | ** | US | FHFA Home Price Index |
| 25/02/2025 | 1400/0900 | ** | US | FHFA Home Price Index |
| 25/02/2025 | 1400/0900 | ** | US | FHFA Quarterly Price Index |
| 25/02/2025 | 1400/0900 | ** | US | FHFA Quarterly Price Index |
| 25/02/2025 | 1400/1400 | GB | BOE's Pill remarks at BEAR Conference | |
| 25/02/2025 | 1500/1000 | *** | US | Conference Board Consumer Confidence |
| 25/02/2025 | 1500/1000 | ** | US | Richmond Fed Survey |
| 25/02/2025 | 1530/1030 | ** | US | Dallas Fed Services Survey |
| 25/02/2025 | 1645/1145 | US | Fed Governor Michael Barr | |
| 25/02/2025 | 1800/1300 | US | Richmond Fed's Tom Barkin | |
| 25/02/2025 | 1800/1300 | * | US | US Treasury Auction Result for 5 Year Note |