ITALY AUCTION PREVIEW: 5/10-year BTP and CCTeu auction

Speaking alongside German Chancellor Olaf Scholz in Berlin, PM Mette Frederiksen calls for "an even more united Europe and for more cooperation" in the face of US President Donald Trump's call for Denmark to sell Greenland to the United States. Frederiksen did not mention Greenland by name, instead raising the threat to European security posed by Russia's hybrid attacks. Frederiksen: "We need a stronger and a more resolute Europe standing increasingly in its own right, [...[ I think we have to take more responsibility for our own security…Europe, our continent, is based on the idea of that cooperation rather than confrontation will lead to peace, to progress, to prosperity, "

• A 'fiery' call between Frederiksen and Trump last week has further raised concerns in Copenhagen and Brussels that a major US effort to gain control of Greenland may not be a pipe dream or bargaining chip, but a core policy aim for the Trump White House.
• Scholz also did not mention Trump or the Greenland issue directly. Instead, speaking about the war in Ukraine, Scholz said "The inviolability of borders is a fundamental principle of international law." He went on to say "The principle must apply to everyone...Borders must not be moved by force," before adding in English "To whom it may concern."
• After talks with Scholz, Frederiksen will travel to Paris to meet with French President Emmanuel Macron, and then hold talks with NATO Secretary General Mark Rutte in Brussels in the afternoon. 

This morning, Germany will hold its second Schatz auction of the year. On offer will be E5bln of the new 2.20% Mar-27 Schatz.

• The size is a step up from the E4.5bln seen at the last Schatz auction in January; however, the size is consistent with recent Schatz launch auctions.
• Recent Schatz auctions have passed smoothly, with solid bid-to-covers (in a 2.19x to 2.61x range since August), bid-to-offers (1.69x to 2.17x range since August) and the low prices above the secondary market mid-prices throughout 2024.
• The amount allotted as a percentage of total offered in the 7 January auction was the lowest for a Schatz auction since November 2022 at around 77%, but we place little signal on this metric and it should not impact the outcome of today's auction.
• For the last Schatz auction on 7 January, the bid-to-cover stood at 2.34x, while the bid-to-offer came in at 1.81x.
• The political situation in Germany is characterized by some uncertainty at the moment amid snap elections being scheduled for February 23. However, the mainstream parties are expected to be able to form a functioning government as of now - so we don't expect an impact on today's Schatz auction from that.
• The next German auction will be tomorrow's E4.5bln of the 2.50% Feb-35 Bund (ISIN: DE000BU2Z049), while the 2.20% Mar-27 Schatz will be reopened next on February 18.
• Timing: Results will be available shortly after the bidding window closes at 10:30GMT / 11:30CET.