GILTS: Rally Fades Ahead Of Spring Statement

The Bundesbank overall remains gloomy in their February monthly report, specifying their outlook for inflation and output in Germany for 2025:

• "Economic output could grow marginally in the first quarter. In terms of the underlying trend, the German economy remains trapped in stagnation."
• A reminder that Bundesbank President Nagel recently flagged a 1.5pp negative growth impact by 2027 in a US tariff scenario ('Nagel Sees 1.5pp Negative Growth Impact for Germany In Tariff Scenario' - MNI, February 17).
• "The inflation rate is likely to fall over the next few months before rising again temporarily from the middle of the year. The main drivers of the expected disinflation process are services. Lower wage increases will contribute to this. Nevertheless, inflation in services should remain at a significantly above-average level."
• "By contrast, the contribution of energy is likely to rise again over the course of the year, partly due to base effects. Food prices are expected to rise significantly due to price developments at upstream levels and the after-effects of the extraordinarily strong wage increases in the retail sector.
• "The prices of industrial goods excluding energy are currently expected to rise moderately. The disinflation process is therefore likely to continue in terms of the core inflation rate."

The latest CFTC CoT report revealed that both leveraged funds and asset managers covered a portion of the overall net exposure in the period ending February 18.

• Leveraged funds covered existing net shorts across all contracts barring WN futures, where they extended marginally on their existing short. The net short cover seen across TU through US futures summed to ~$22.7mln DV01, with ~$17.6mln of that coming via FV & TY futures. The cohort remains net short across all contracts.
• Asset managers trimmed net longs in all contracts outside of WN, building on an existing net long in the latter. The overall net positioning adjustment seen within the cohort was much smaller than what was seen amongst leveraged funds (~$11.9mln DV01 net longs were cut across TU through US futures, once again concentrated in FV & TY). The cohort remains net long across all contracts.
• Non-commercial net positioning (detailed in the image below) saw a mixture of short cover, short setting and long setting across contracts. Short cover in FV & TY dominated. The cohort remains net short in all contracts outside of US futures.

Source: MNI - Market News/CFTC/Bloomberg