Following yesterday's move by the German finance agency to ease repo market tensions:

• Commerzbank recommends 10Y Bund ASW tighteners targeting 70bp, (trading at 90bp currently, and 98.6bp going into the DFA's announcement) "with the DFA finally tackling Bund specialness and collateral supply set to rise significantly next year, both through net issuance and shifts in the €QE portfolio".
• They also note that there will be a bump in relative demand from index trackers due to the increase in Bund volume (even though the Bunds remain with the DFA), supporting Bunds into month-end, but subsiding thereafter. As such, "resilience in coming days should be used to scale into shorts."
• From a broader perspective, they saw the decision as "an attempt to preserve the Bund premium by signaling to the market that the transmission frictions (i.e. extreme specialness) is addressed and more drastic measures to address frictions are not needed (e.g introducing ECB bills which would challenge the status of Bunds as the core € risk-free asset)."

Bund ASW (bp)Source: BBG