The Deutsche Finanzagentur...>

GERMAN AUCTION PREVIEW: The Deutsche Finanzagentur sells up to E1.5bln of Bund

2.5% Jul-44 on Wednesday. 

- BACKGROUND: First issued in 2012, this is trading well away from par at

126.30. It is not close to being a CTD in any eurobuxl delivery until September.

It is very rare for Germany to issue an off-the-run security. 

- RV: Outright, yields have increased but the dramatic flattening of the 10-30Y

yield spread means that optically, yield curve extensions do not look

attractive. On micro butterflies in the area, the 2044 appears to have

outperformed similar maturity securities. Against swaps, the asset swap spread

has widened to -34bp from being closer to -32bp last week - not helpful. Most

dealer buying is likely to be hedged with the EuroBuxl contract, which has the

CTD as the DBR 3.25% Jul-42. Unfortunately, the spread between the CTD and the

2.5% Jul-44 has collapsed to 5.2bp from 7.0bp in mid-Jan. In other words, the

Jul-44 looks expensive. This auction might not be easy.

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