NORGES BANK: Rates Held At 4.50%, 2x25bp Cuts Likely In 2025

Lawmakers from the conservative-libertarian Japan Innovation Party (Nippon Ishin no Kai) have formally given their backing to a draft agreement on budget amendments and to support the budget bill worked out between Ishin party leaders and figures from the gov't of PM Shigeru Ishiba late last week. Late last week reports suggested that an agreement to get the FY2025/26 JPY115T state budget over the line was close. 

• Ishiba's conservative Liberal Democratic Party (LDP) and its coalition allies Kometio lost their majority in the House of Representatives in the October 2024 legislative election, requiring negotiations on a bill-by-bill basis.
• LDP Diet Affairs Committee Chairman Sakamoto Satoshi has said that a vote on the budget will likely be after 3 March. Initially, if the budget bill was not passed in the House of Representatives by 2 March, the unamended version would have passed to the upper House of Councillors for approval. However, discussions over amendments resulted in a formal delay to the schedule.
• Given the LDP-Komeito gov't holds a majority in the upper chamber, once passed in the House of Representatives the budget's approval should be relatively smooth, with the expectation that it will be passed by the end of March.
• Ishin supporting the budget is sufficient to provide a majority, with the LDP now not requiring the backing of the main opposition centre-left Constitutional Democratic Party, which according to Kyodo News had been "calling for changes worth nearly [JPY3.8T] to reduce education-related expenses for households and end a gasoline surcharge amid persisting inflation." 

This morning, Germany will hold its second Green Bund auction of the year. On offer will be E1.5bln of the 1.80% Aug-53 Green Bund.

• The size is a step up from the E1.0bln seen at the last Green Bund auction in January, and is the largest German green auction size since July 2022.
• Recent auctions in the German 30-year Green Bund segment have passed smoothly, with solid bid-to-covers (in a 1.57x to 3.32x range since July), bid-to-offers (1.53x to 3.28x range since July) and the low prices above the secondary market mid-prices throughout 2024.
• For the last 1.80% Aug-53 Green Bund auction on 23 January 2024, the bid-to-cover stood at 2.01x, while the bid-to-offer came in at 1.93x.
• Bund (non-green) positioning currently appears short, see our Europe Positioning Indicator here.
• The fiscal situation in Germany is characterized by some uncertainty at the moment after Sunday's snap elections were followed by talks of passing a bill on increased military spending using the outgoing parliament. This prompted some Bund weakness yesterday evening - which was pared this morning, however.
• Delays vs expectations in timing on a German 30y syndication might be due to the election - today's 30y Green auction might be partially to fill that gap.
• The next German auction will be tomorrow's dual-tranche E500mln of the 0% May-36 Bund (ISIN: DE0001102549) and E1.5bln of the 1.00% May-38 Bund (ISIN: DE0001102598).
• Timing: Results will be available shortly after the bidding window closes at 10:30GMT / 11:30CET.

Italy will sell E2.50-2.75bln of the 2.55% Feb-27 BTP Short Term (ISIN: IT0005633794) and E1.25-1.50bln of the 1.80% May-36 BTPei (ISIN: IT0005588881) at today’s auction.

• This will be the first re-opening of the 2.55% Feb-27 BTP Short Term, which was launched on January 28. The launch saw a 1.63x bid-to-cover ratio for the E3bln issued.
• The spread of this BTP Short Term to the 2.20% Mar-27 Schatz has fluctuated in a relatively narrow range between 32-35bps since January.
• The 1.80% May-36 BTPei has been re-opened three times since its syndicated launch last March. The January re-opening attracted a 1.72x bid-to-cover ratio for the E1.25bln issued, with the average price of 99.060 exceeding the 98.966 pre-auction mid-price.
• Comparing against the 1.45% Mar-36 BTP, this BTPei has a breakeven rate of 171.4bps (vs a YTD closing low of 168.1bps on Jan 1)
• Timing: Results will be available shortly after the bidding window closes at 10:00GMT / 11:00CET.