German government bonds are trading little changed Wednesday ahead of the ECB’s inaugural 3-year LTRO. Bunds traded sharply lower yesterday following better than expected German Ifo business survey and strong Spanish 3-month and 6-month T-bill auctions with further tightening in EMU peripheral spreads as investors continued to purchase periphery bonds ahead of the ECB’s 3-year LTRO, which is the key focus today. Whilst the consensus estimate is between E250bln-E300bln, the risks for take-up are skewed higher, with a number of bank economists also revising their forecasts higher. Overall, the stronger demand is seen showing willingness of banks to reinvest in periphery debt and therefore risk-on, and a low outcome seen indicating banks balance sheet contracting, and risk-off. In addition, banks are permitted to roll their 12-month LTRO conducted in October into the new 3-year LTRO. The ECB also conducts a 14-day dollar repo. The 3-year & 3-month LTRO results are due at around 1015GMT. Ahead of this, the BoE MPC Minutes for December & UK public borrowing data for November due at 09:30GMT.
EasyForexNews Research Team