German government bonds trading mixed Wednesday with yield curve steeper in the wake of the ECB’s 3-year LTRO. Bunds came under pressure after ECB’s 3-year LTRO, where E529.5bln was alloted, with 800 banks bidding. This compares to market median estimate of around E500bln — bank estimates were wide and ranged from E200bln-E700bln. This compares to the inaugural 3-year LTRO in December, where the new liquidity was estimated to be around E193bln, and 523 banks bid. In addition, bank estimates of net new liquidity range from E310bln-E329.5bln; after Tuesday’s 7-day MRO, where ECB alloted E29.5bln versus E166.5bln maturing & 1-day fine tuning tender allotment of E134bln and this morning’s 3-month LTRO of E6.496bln is taken into account. However, Bunds then squeezed higher after German 10-year benchmark Bund re-opening auction, where E3.2585bln was allotted at an average yield of 1.83% vs 1.82% previous, covered 1.4 times vs 1.4 previous sale on Feb 1. Bunds extended gains as Greek, Portuguese and Irish spreads widened by 41bp, +57bs, +5bps respectively.
EasyForexNews Research Team