ITALY AUCTION PREVIEW: On offer next week

Treasury continued to up the size of 4- and 8-week bills, rising $5B apiece for Thursday's auctions to $95B and $85B, respectively. The new 4-week level will match the all-time largest auctions seen over the last couple of years, with 8-weeks remaining below the $90B peak. 

• This is the 3rd consecutive weekly increase - they're up from $55B/$45B at the beginning of the month, prior to the lifting of the debt limit. 17-week auction sizes were unchanged at $65B.
• The increase is something of a surprise (Wrightson ICAP this morning wrote "We think the Treasury has completed its current ramp-up of bill offering sizes"), in a possible sign that Treasury is not necessarily going to back-load its rebuild of the Treasury General Account post-debt limit: it said after the debt limit was lifted that it is aiming for a cash balance of $500B by end-July (vs $315B at end-last week) and $850B by end-September.
• Upon settlement next Tuesday, the bills will raise $60B in net cash.
• We expect to hear a little more about cash management plans in next week's Refunding round. For the foreseeable future, bills are going to be the moving part in meeting financing requirements, with coupon auction sizes not expected to be increased for several quarters at least. We'll publish our Refunding preview later this week.

• RES 4: 112-15   61.8% retracement of the Apr 7 - 11 sell-off
• RES 3: 112-12+ High Jul 1 and a bull trigger
• RES 2: 111-28 High Jul 3 
• RES 1: 111-13+   High Jul 21 & Jul 10 
• PRICE:‌‌ 111-11+ @ 16:10 BST Jul 22
• SUP 1: 110-08+ Low Jul 14 & 16        
• SUP 2: 110-03   76.4% retracement of the May 22 - Jul 1 bull leg
• SUP 3: 109-28   Low Jun 6 and 11
• SUP 4: 109.25   Low May 27

Treasury futures traded higher again Tuesday, extending the firm start to the week. The move higher has resulted in a break of the 20-day EMA, strengthening the recovery, and markets have met resistance at 111-13+, the Jul 10 high. A clear break of this hurdle would highlight a stronger reversal. Key support lies at 110-08+, the low on Jul 14 and 16. A move through this support would reinstate the recent bearish theme.     

Belgium will look to sell the following OLOs at its auction next Monday, with the target size set to be announced on Friday:

• the 2.60% Oct-30 OLO
• the 3.10% Jun-35 OLO
• the 3.50% Jun-55 OLO