The Deutsche Finanzagentur...>

GERMAN AUCTION PREVIEW: The Deutsche Finanzagentur sells a new 2-year benchmark

0% 13-Mar-20 Schatz issue on Tuesday for up to E5bln in size. 

- BACKGROUND: Value date for the auction is 22 Feb, one day before a E17bln

German redemption. So dealers may feel comfortable to bid on Tuesday in the

belief that buyers will arrive on Wednesday.

- RV/HISTORY: The is an Obl 0% Apr-20 that has almost exactly one month extra

maturity than the new Schatz and yields 7.3bp more than the existing 2Y Schatz

bmk, the 0% Dec-19. Three-quarters of 7.3bp is 5.5bp but we think that the small

Schatz would need to incorporate a small repo/bmk premium and so estimate a fair

yield roll from the previous Schatz as 5bp. Outright, German 2Y yields have

risen and ahead of the Italian elections, the sector might be seen as a

safe-haven. 2Y Schatz auctions are often technically uncovered, although this

time last year the Mar-19 was introduced to a 'massive' 1.5x cover (1.76 buba

calculated), following a rapid rise in yields in the prior month.

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