The Deutsche Finanzagentur...>

GERMAN AUCTION PREVIEW: The Deutsche Finanzagentur re-opens its 30-Year linker

Bundei 0.1% Apr 2046 issue on Tuesday for up to E0.5bln in size. 

- BACKGROUND: At E0.5bln, the issuance size is fairly typical for a 30Y linker

but the last time this security was sold (Sept) it received just E0.507bln in

bids and the yield was 7bp lower than it is trading at today. European inflation

is showing little evidence of acceleration at the core level and while the oil

pickup helps the headline and bond carry, the 30Y is not usually the place to

take advantage of this. There are no redemption or coupon payments to help on

Tuesday. 

- RV: The 30Y German breakeven has been gradually trending higher since June,

moving from 135bp to 166bp. While the current breakeven level is below the ECB's

inflation target, this spread has struggled to move above the 170bp level since

the linker was first sold in 2015. The real yield spreads to the 10Y Bundi or

the 30Y French linker are unremarkable. This is unlikely to be an easy auction.

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