EMISSIONS: EUAs Implied Volatility Falls To All-Time Low

Politico reports that, according to an official close to President Emmanuel Macron, at today's cabinet meeting, the head of state told ministers that the EU "failed to leverage its massive single market and sufficiently scare the United States into accepting a better deal". Macron is reported to have said, “We need to be feared. We weren’t feared enough”. Macron's are not the first negative comments to have come from the French gov't concerning the trade and tariff agreement with the US, with PM Francois Bayrou saying the deal marked a "dark day" for the EU. 

• The article suggests that, on a more positive note, Macron praised the EU for “negotiations conducted in difficult conditions” and acknowledged that talks will continue, saying “The story isn’t over and we won’t stop there."
• As MNI's Policy team noted in the aftermath of the announcement, "France's problems with the deal may flow from the failure to reach agreement on wine and spirits, though the aircraft sector, also important to the country, won an exemption." (see 'MNI: EU States Broadly Back EU-U.S. Deal - Officials', 28 July).
• Much like the German gov't (see 'GERMANY: Fin Min: EU-US Deal Will Take Toll On Economy', 12:54BST), while the French gov't has voiced its disappointment with the deal it is unlikely that the Elysee will look to actively block the agreement, with the worst-case scenario of 30% tariffs and EU retaliation coming back into play in that scenario. 

On other aspects of the Refunding announcement outside of buybacks, first we turn to the Policy Statement:

• Guidance: The retaining of existing policy guidance was as expected by most: "Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters." Some analysts however had expected this to be tweaked to suggest a possible change in nominal coupon sizes as soon as early 2026.
• We expect that lingering expectations of a February upsizing will be pushed back to later in the year. Prior to this refunding, MNI had pushed back our expectation for the next upsizing to August 2026 from February 2026.
• TIPS Sizes Upped: Also as widely expected, the only change to issuance sizes were for 5Y and 10Y TIPS which increased for the upcoming quarter: ("Treasury plans to maintain the August 30-year TIPS reopening auction size at $8 billion, increase the September 10-year TIPS reopening auction size to $19 billion, and increase the October 5-year TIPS new issue auction size to $26 billion."). Further increases are likely for future quarters. See table below.
• Bills: Bill sizes will be upped a little more amid the Treasury General Account rebuild post-debt limit raise: "Treasury anticipates further marginal increases in short-dated Treasury bill auction sizes in the coming days and then maintaining sizes at or near those levels through the end of September. Additional increases to Treasury bill auction sizes are anticipated in October."

Euribor Basis trade:

• ERU5 4k at 98.01.