FOREX: Clustered Options Interest Could Define Today's EUR Range

• MNI: ITALY JULY FINAL SERVICES PMI 52.3 (52.6 FCAST, 52.1 JUNE)

BNP (15th Aug) 82c, bought for 0.36 in 1.8k.

The DMO will sell GBP4.5bln of the 4.50% Mar-35 Gilt this morning (bidding window closes at 1000BST). This Gilt was launched via syndication in February and has been re-opened via auction in each of the 5 months since. 

• The previous re-openings have seen tails gradually fall from 0.5bps in March to 0.2bps in July.
• Bid-to-cover ratios have ranged from 2.85x (April) to 3.13x (May).
• The auction size has been increased from GBP4bln in March and April, to GBP4.25bln in May and June and now GBP4.5bln in July and August.
• The DMO will hold a medium-dated syndication in September and we would be very surprised if this was anything other than a new 10-year gilt launch. We pencil in a transaction at the very beginning of the quarter (W/C 1 September).
• The last two 10-year gilt syndications have seen the maturity one month longer than 10-years and we look for that pattern to continue with an October 2035 maturity. Given the gap in the maturity schedule there is a possibility that the gilt has a slightly later maturity, however, with any month between October 2035 and January 2036 possible in our view.
• In this light, RBC expect supportive demand at today’s sale. They write that “whilst we don’t particularly like being long the 4H35s on micro-RV, or vs the 15y sector, ahead of the 10y syndication, we think 10y ASWs currently look very attractive on the 5s10s ASW box”. They also “generally like being long gilts x-market vs bunds”.