PLN: Zloty Eyes Flash CPI, NBP Rate Decision Next Week

The 10-Year UK/German yield spread is just 0.6bp above its ’25 closing low (204.4bp vs. 203.8bp), with a post-election increase in odds of near-term German fiscal support driving spread tightening week-to-date.

• The 38.2% retracement of the July ’24 to December ’24 widening lies at 202.9bp (based on closing levels), protecting the psychological 200bp level.
• A more concrete move towards deployment of a special fund to boost German defence spending would help push the spread closer to the 200bp mark.
• There seems to be enough political support for the idea, which heightens the odds of an expedited vote on the matter before the change in the Bundestag composition in late March.
• Debt brake discussions will be key for the spread multi-month, as will the UK’s fiscal path, particularly with the UK economy still experiencing limited growth and with already narrow fiscal headroom largely eroded. 

Fig. 1: UK/Germany 10-Year Yield Spread (bp)

Source: MNI - Market News/Bloomberg

This morning, Germany will hold its second 15-year Bund auction of the year. On offer will be E500mln of the 0% May-36 Bund (ISIN: DE0001102549) and E1.5bln of the 1.00% May-38 Bund (ISIN: DE0001102598).

• The size is a consistent with recent Bund auctions in the 15-year segment.
• Recent auctions in the German 15y segment have 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 above the secondary market mid-prices throughout 2024.
• For the last 0% May-36 Bund auction on 9 October, the bid-to-cover stood at 4.87x, while the bid-to-offer came in at 3.98x. For the last 1.00% May-38 Bund auction on 4 September, the bid-to-cover stood at 5.49x, while the bid-to-offer came in at 4.81x.
• Bund 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 earlier this week - which was pared in the meantime, however. For a round-up of analyst views on the German election, see here.
• The next 15y Bund auction will be on 26 March, while further openings of both Bunds on offer are not scheduled yet.
• Note that we are also expecting a German 30-year Bund syndication at some point. The timing is uncertain following the German election.
• Timing: Results will be available shortly after the bidding window closes at 10:30GMT / 11:30CET.

A bearish theme in WTI futures remains intact and Tuesday’s sell-off reinforces current conditions. The move lower has resulted in a clear breach of support at $70.20, the Feb 6 low. This confirms a resumption of the downtrend that started on Jan 15 and paves the way for an extension towards $67.75, the Dec 20 ‘24 low. Key short-term resistance has been defined at $74.06, Feb 3 high. Despite Tuesday’s pullback, a bull cycle in Gold remains in play. Recent fresh cycle highs once again confirm a resumption of the uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend and positive market sentiment. Sights are on the $2962.2, a Fibonacci projection. The first key support to watch is $2879.0, the 20-day EMA.

• WTI Crude up $0.3 or +0.44% at $69.24
• Natural Gas down $0.02 or -0.46% at $4.137
• Gold spot down $0.68 or -0.02% at $2913.89
• Copper up $17.3 or +3.82% at $470.75
• Silver up $0.05 or +0.15% at $31.7699
• Platinum up $3.9 or +0.4% at $974.32