EURIBOR OPTIONS: Call Condor

• The DMO will kick off issuance for the week on Tuesday with its penultimate long-dated auction of 2025 and final 30-year auction of the year. On offer will be GBP1.5bln of the on-the-run 5.375% Jan-56 gilt. We note that there was a small 0.15bp flattening of the curve when the auction size was announced last week. This is obviously a very, very marginal move but its still notable for an auction size announcement. The last 30-year auction was for the 4.375% Jul-54 gilt on 8 Apil and was for GBP2.25bln nominal which would have been closer to GBP2.00bln for the 5.375% Jan-56 gilt in cash terms.
• The smaller auction size follows the DMO’s announcement on 3 September that the auction of the 5.375% Jan-56 gilt which had been scheduled for 2 December would be removed from the calendar (this announcement was made on 3 September). There will instead be only one long-dated auction in FQ3 with the 1.50% Jul-53 green gilt on offer on 21 October, although there will still be a 15-year syndication held in October.
• Tuesday’s auction will be the first for the 5.375% Jul-56 gilt after its launch via syndication on 20 May. The syndication saw a decent book size of GBP73.1bln but was notable in that the DMO did not upsize the transaction (it usually does so substantially if demand is strong).
• There have no 20+ year non-linker operations since July, so this auction will be seen as a litmus test for long-dated gilt demand.

• Treasury futures dipped briefly, rebound after comments from Fed Bostic: sees little reason for additional rate cuts "for now", labor market "not in crisis.
• Currently, the Dec'25 10Y trades +4 at 112-28 (yld 4.1216% -.0058) vs. 112-28.5 low - technical resistance well above at 113-29 (High Sep 11 and the bull trigger); Support at 112-22/112-15+ (Low Sep 19 / High Aug 5 and 14).
• Curves mixed: 2s10s -.186 at 55.192, 5s30s +2.173 at 108.512.
• US$ index near lows, Bbg's BBDXY -1.91 at 1196.59.

Bank of America issued two new trade recommendations late last week, based on their view of a more cautious Fed, namely paying April FOMC-dated OIS and initiating 2s10s flatteners.

• For the former, they note that the April FOMC is priced “below the end '26 median Fed dot, which seems overdone with Powell at helm”.
• On the latter, they also factor in their Fed view, as well as positive carry.