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More focus than usual on today's MT OAT auction

FRANCE AUCTION PREVIEW
  • France will look to hold both MT OAT and linker auctions today. We will be watching the MT OAT auction closely, particularly given that it is the first auction following the calling of the election.
  • E8.0-10.5bln will be on offer at the MT OAT auction. We note that this is the smallest top end of a range for a MT OAT auction since January 2023 (with the exception of the August 2023 auction – with August auctions always smaller) and the lower end of the target range is the smallest since November 2022.
  • So far this year all MT auctions have either had a range of E10.5-12.0bln or E11.0-12.5bln - and the top of the target range (or very close to) has been achieved at each MT OAT auction this year.
  • If towards the bottom of the target range is sold it may boost some of the bid-to-covers in the auction - making the auction look stronger than it actually is. And even if the top of the target range is achieved 2023 only saw smaller auctions in January, August and November (with the latter two months always smaller due to lower issuance activity in the summer and being close to the annual target in November).
  • If the auction metrics such as bid-to-cover and gap between stop price and mid-price still look weak with an amount sold in the bottom half of the target range, we would also expect to see a small negative reaction in OAT-Bund spreads.
  • In a worst case scenario where the bottom of the target range is not achieved the market could be even more spooked.
  • Results will be available shortly after the auction closes at 9:50BST/ 10:50CET.
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