EU ENERGY SECTOR: Repsol: Q3 Trading Update              

ERZ5 98.0625/98.125 call spread, bought for 2 in 4k

• With much of the focus in gilt markets recently having been on how the long-end performs, there will be more focus than usual on today's short 20-year gilt auction with GBP1.75blnm of the 4.75% Oct-43 gilt on offer.
• The focus remains on long-end yields despite them coming off their highs. Yields of the 4.75% Oct-43 gilt hit a high of 5.5548% (via Bloomberg data) on 3 September and as of yesterday's end of trading were over 27bp off this high. Note that during the height of the recent selloff there was not a notable steepening of the 20s30s curve and the 20-year area was hit almost as much as the 30-year area.
• This stabilisation was partially helped by a strong auction of the 0.625% Mar-45 linker last Thursday (although this was a minor contributing factor in the grand scheme of the move and not the trigger for the correction).
• Either way, the yield at today's auction is set to be the highest for over 15 years in the 20-year area.
• This will be the last 20-year auction of the calendar year with the DMO due to launch a new 15-year gilt via syndication in October (and a 30-year auction in 2 weeks and green auction in October the only other long-dated issuance scheduled for this calendar year).
• Timing: Results will be available shortly after the bidding window closes at 10:00BST with a further GBP437.5mln on offer to successful bidders via the PAOF.

The BoJ are said to see a chance of a rate hike this year, despite politics, according to a Bloomberg sources report. The piece writes that the Bank are said to see rates likely unchanged in September, but they see steady progress toward the bank's price target and the US trade deal has removed some risks to growth.  

• BoJ pricing sees the next hike not fully priced until March next year (assuming a 25bps rate rise) so this would be a hawkish development. Current OIS run of BoJ pricing:
• Sept 19th: No change priced
  Oct 30th: +7bps
  Dec 19th: +13bps
  Jan 23rd: +21bps
  Mar 19th: +24bps
• On specific meetings, it looks like the October decision could be in play, but isn't the unified view: "Some officials are even of the view that a hike might be appropriate as early as October, according to some of the people." JPY has gained on the report, but no new session lows for USD/JPY: price slips to 146.87 before rebounding and steadying slightly.