EMISSIONS: UK CBAM Cost References Quarterly ETS Auction Price

This morning, Italy will hold a BTP Short Term and BTPei auction. On offer will be E2.5-3.0bln of the on-the-run 2.55% Feb-27 BTP Short Term (ISIN: IT0005633794) alongside E1.0-1.5bln of the 1.50% May-29 BTPei (ISIN: IT0005543803).

• The 2.55% Feb-27 BTP Short Term was launched in January, and the February re-opening attracted a 1.59x bid-to-cover ratio for the E2.75bln issued.
• The MNI Policy Team recently report that Europe’s push for increased defence spending is exacerbating tensions within the Italian government, with Prime Minister Giorgia Meloni worried about a Europe-wide rise in borrowing costs and her deputy calculating whether to abandon the coalition if rearmament becomes too politically unpopular.
• Signs of Italian fiscal conservatism relative to Germany should continue to help facilitate demand at BTP auctions, even with the current 2.55% Feb-27 BTP Short Term spread to the 2.20% Mar-27 Schatz close to YTD lows of 27bps.
• The 1.50% May-29 BTPei has attracted an average bid-to-cover ratio of 1.61x for amounts issued of between E1.00-1.25bln across the last five re-openings. The current implied break-even rate for this BTPei is 193.9bps, up from a low of 160.6bps at the start of this year.
• Italy will also hold a 5/10-year BTP and CCTeu auction this Thursday,
• Timing: Results will be available shortly after the bidding deadline closes at 1000GMT.

• EUR/USD: $1.0690(E912mln), $1.0775-90(E766mln), $1.0900-25(E2.3bln)
• USD/JPY: Y148.00-10($932mln), Y151.74($519mln), Y152.00($955mln)
• AUD/USD: $0.6370-80(A$699mln)
• USD/CAD: C$1.4200($556mln), C$1.4240($634mln), C$1.4500($781mln)
• USD/CNY: Cny7.2430($600mln), Cny7.3000($500mln)

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.