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

FRANCE AUCTION PREVIEW
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.

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