On Wednesday, Germany........>

GERMAN AUCTION PREVIEW: On Wednesday, Germany sells E3bln of the 10Y bmk, 0.5%

Aug-27 

- BACKGROUND: There are no redemptions or coupon payments to help today. The

German government has yet to form a coalition although this may not matter much

for the auction. There is heavy issuance from Ireland (synd), Spain, France and

UK today and tomorrow.

- RV/HISTORY: A month ago, the 10Y Bund yield was hovering around 0.32% compared

to 0.463% this morning. Most dealers would use the contract to hedge this

auction and fortunately, the spread between the RXZ7 CTD, the 0% Aug-26 and the

Aug-27 on sale today, the spread has never been more generous. Furthermore, the

5-10Y German spread is close to its steepest since March. Where Germany does not

look cheap is against swaps, with the asset swap spread at -45bp and at the

bottom of its range. Perhaps there will be some switching from the periphery. At

the last auction on Sep 13, the yield was 0.39% and the 6 auction average cover

has been 1.6x (Buba calc) or 1.2x if calculated using available for sale.

- RESULTS: Auction results are due shortly after bidding close at 0930GMT.