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

GERMAN AUCTION PREVIEW: On Wednesday, Germany sells a smallish E2bln of the 10Y

bmk, 0.5% Aug-27 

- BACKGROUND: This is the last German 10Y of the year. It is usual for Germany

to issue a new 10Y benchmark in Germany, so this is likely the last outing for

the Aug-27. Thursday is last trade for the Dec-17 Bund contract, hedges will be

done on the Mar-18.

- RV/HISTORY: Owning the Bund 0.25% Feb-27 in the final days of its life as a

benchmark did not work out so well as it cheapened by almost 0.5bp against a

spline curve. Incidentally, the Feb-27 is the CTD into the Lar-18 Bund contract.

Luckily, the spread between the Bund 0.25% Feb-27 and 0.5% Aug-27 is a

generous-looking 8bp. Bund-EGB spreads have narrowed, so the country looks cheap

on a cross-issuer basis. However, apart from the deliverable basket, the curve

has flattened. At the last 10Y auction on 15 Nov, the 10Y auction was just about

technically uncovered at a yield of 0.36%. However, the 6 auction average 10Y

German bid-cover has been 1.2 or 1.5x according to the Buba calculation. 

- RESULTS: Auction results are due shortly after bidding close at 1030GMT.