France sells E6.5-7.5bn of...>

FRANCE AUCTION PREVIEW: France sells E6.5-7.5bn of OATS and E1.25-1.75bln of

linkers on Thursday. On offer are the 0.00% Feb-21 OAT, 0.00% Mar-24 OAT, 0.10%

Mar-25 OATEi, 0.70% Jul-30 OATEi and 0.10% Jul-47 OATEi.

- BACKGROUND: Three of tomorrow's issues are benchmarks: the 0.00% Feb-21

(2-year benchmark), 0.00% Mar-24 OAT (5-year) and the 0.10% Mar-25 OATEi (7-year

linker). France is well ahead on issuance for this year. A successful auction

tomorrow would take total issuance to 74% of target for 2018.

- RV/HISTORY: The OAT curve has flattened significantly over the past month with

the 2s10s spread narrowing to 105.4bps from 138.8bps on June 11. This has been

driven predominantly by the long-end outperforming with the benchmark 10-year

OAT yield dropping to 0.627% from 0.907% over the same period. Across the curve

OATs trade inside the comparable EUR swaps, with the 0.00% Feb-21 and 0.00%

Mar-24 trading 36.6bps and 35.1bps rich, respectively. Market-based inflation

expectations have fallen recently with the 5-year breakeven rate falling to

1.20% from a month high of 1.32% on July 10.

- TIMING: Results are due shortly after the auction closes at 0955GMT.