The Deutsche Finanzagentur...>

GERMAN AUCTION PREVIEW: The Deutsche Finanzagentur sells its 2-year benchmark 0%

Dec 2019 Schatz issue Tuesday for up to E3bln in size. 

- BACKGROUND: There is a E13bln redemption on Friday, 15th. Inconveniently, the

settlement for this auction is Thursday 14th, which would limit the positive

contribution to the auction of this cash. The Schatz Dec-19 is CTD into DUH8. On

the plus side, the E3bln size of the auction is the smallest of the year and so

this auction should not be a problem despite the time of the year.  

- RV/HISTORY: The 2Y Schatz swap spread is often seen as a repo or

collateral-driven trade and the potential year-end repo squeeze beckons. If GC

repo drops or the Schatz becomes more special (it is modestly so already, the

the Schatz will outperform swaps and the Schatz contract. However, these are

balance sheet trades and so unlikely to be a big driver behind today's auction.

Outright, the 2Y German yield is -0.731%, towards the low end of its six month

range. A six month Buba-calculated cover ratio is 1.67x, or 1.3x calculated more

conventionally.

- TIMING: Auction results are due shortly after bidding closes at 1030GMT