USD: Greenback Firms on Friday, DXY Yet to Recapture 100.00 Mark

This morning, Germany will hold its third 15-year (non-green) Bund auction of the year. On offer will be E1.5bln of the 2.60% May-41 Bund (ISIN: DE000BU2F009) and E500mln of the 2.50% Aug-46 Bund (ISIN: DE0001102341).

• The sizes are consistent with recent Bund auctions in the 15-year segment.
• Recent auctions in the German 15y segment have generally passed smoothly, with solid bid-to-covers (in a 1.61x to 5.49x range since July), bid-to-offers (1.29x to 4.81x range since July) and the low prices mostly above the secondary market mid-prices throughout 2024.
• However, the 2.60% May-41 Bund on offer today has seen some comparatively weak demand in some instances - the 1.61x bid-to-cover representing the low point of the above range was posted during the auction of that Bund last August, and its auction on January 22 has seen the low price slightly below the secondary market mid-price then.
• For that last 2.60% May-41 Bund auction on January 22, the bid-to-cover stood at 2.42x, while the bid-to-offer came in at 1.82x. For the last 2.50% Aug-46 Bund auction on November 6, the bid-to-cover stood at 4.50x, while the bid-to-offer came in at 3.69x.
• Bund positioning currently appears short - see our current Europe Pi positioning indicator here.
• The next German auction will be E4.5bln of the 2.20% Mar-27 Schatz (ISIN: DE000BU22080) on April 1.
• Timing: Results will be available shortly after the bidding window closes at 10:30GMT / 11:30CET.

Bund futures have moved away from session highs but remain above yesterday’s settlement levels owing to the softer-than-expected UK inflation report and pullback in European equity futures since the cash open. Bunds are +8 ticks at 128.21 at typing. 

• Bund futures are holding on to the bulk of their recent gains. Resistance remains intact and - for now - the latest move higher is considered corrective. Initial resistance is Monday's gap of 128.48, which shields the 20-day EMA at 128.72.
• The German curve has lightly bull steepened, with 2-year yields down 1.5bps and 30-year yields up 0.5bps. Today’s 15-year Bund supply will likely be containing rallies at the long-end.
• There was little net reaction in Bunds/German ASWs on today’s constitutional court judgement, which allows the government to keep raising the solidarity surcharge (and so no further fiscal shortfall was created).
• This morning, Bank of Italy Governor Panetta played down the role of r* in calibrating near-term policy when rates are close to plausible neutral rate estimates (he views this range at 1.50-2.50%). He noted that “the ECB must remain pragmatic and data driven”, but its worth recalling he'll approach most decisions with a dovish bias.
• The equity pullback sees 10-year EGB spreads to Bunds biased wider. BTP Short Term and BTPei supply is due at 1000GMT.
• The EFSF has sent an RFP to a selection of banks with regards to an upcoming transaction. We pencil in a transaction on 31 March / 1 April, but don't have a strong conviction on the size / maturity.

• GBP is softer against all others in G10 on the back of the February CPI print - the headline missed expectations, with Y/Y CPI 0.2ppts lower than forecast at 2.8%, however the underlying details were more mixed, with services CPI proving stickier than expected against both market and BoE expectations. In addition, slowing core goods inflation came in large part due to clothing discounting, which is often swiftly reversed.
• As a result, GBP/USD has faded further off highs, narrowing the gap with 1.2886 - the March 23rd low and key support. The sustainability of any further weakness will be dependent on how seriously the market sees this slower CPI print as a threat to the BoE's policy cycle. SONIA markets have priced in slightly more aggressive easing this year as a result, but the market is moving quickly to reverse the move into the US crossover.
• AUD and NZD trade well despite the moderation in Australian CPI Y/Y for February, and as the currencies shrug off the softer showing from global equities. Cross demand is largely responsible here, with NZD/JPY rising through resistance at the 50-dma of Y86.29. AUD/JPY is yet to rise through the same level, which has been tested on several occasions this year - meaning a break of 95.37 would be a bullish signal.
• Prelim US durable goods data is the data highlight Wednesday, while the CB speaker slate sees Fed's Kashkari & Musalem, ECB's Knot & Cipollone as well as the BoC minutes release.