EUROZONE T-BILL ISSUANCE: W/C 28 Jul
France, Italy and Greece are due to sell bills next week. We expect issuance to be E14.3bln in first round operations, down from E17.7bln this week.
- On Monday afternoon, France will look to sell up to a combined E7.3bln of 13/28/38/50-week BTFs: E2.6-3.0bln of the 13-week Oct 29, 2025 BTF, E1.4-1.8bln of the new 28-week Feb 11, 2026 BTF, E0.2-0.6bln of the 38-week Apr 22, 2026 BTF and E1.5-1.9bln of the 50-week Jul 15, 2026 BTF.
- On Tuesday morning, Italy will look to issue E6.5bln of the new 6-month Jan 30, 2026 BOT.
- Finally on Wednesday morning, Greece will look to come to the market with E500mln of the new 13-week Oct 31, 2025 GTB.
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EURIBOR: Positive Skew Affirms Lower ECB Rate View; EU-US Trade Deal In Focus
Euribor options markets continue to exhibit positive skew across the next three quarters (U5, Z5, H6), with the risks of more aggressive ECB easing than currently expected spurring demand for dovish call structures, often funded through sales of puts/put spreads. The June Eurozone flash inflation round kicks off on Friday with Spain and France (EZ HICP estimate on July 1st), but the outcome of EU-US trade negotiations are likely to be more consequential for the EUR front-end ahead of the July 8 tariff delay deadline.
- A reminder that if no agreement between the EU and US is reached, almost all EU exports to the US will be subject to 50% tariffs. Although general expectations are that such an extreme outcome will be averted (the ECB’s “severe” trade scenario presented at the June decision assumed 20% US tariffs on EU exports alongside EU retaliation), it still presents a notable downside growth risk, both directly and via the uncertainty channel.
- While officials have signalled that talks are “progressing”, there is not a yet clear pathway to a deal. Recent reporting has suggested EU officials are preparing retaliatory measures even in the case of a 10% baseline US tariff.
- Today’s flow has included a buyer of the 98.375/98.50/98.625 Z5 call fly in 5k, with a 98.125/98.25/98.375 U5 call fly bought in 10k yesterday. In H6, last week saw 98.06/98,1875/98.4375/98.5625 call condors favoured, sold against puts/put spreads.
- While markets still lean dovish on balance, compressed put vol has seemingly provided attractive entry points for those with a more hawkish ECB outlook. Increased German/EU fiscal spending may be one factor supporting this view, alongside possible medium-term inflationary risks from increased trade barriers (especially in the case of EU retaliation). Last Thursday saw a large buyer of 97.9375 Z5 puts for 2.25 in 55k. These puts were trading at ~25 ticks in early March following the initial German fiscal announcement. Outright put buyers have also been seen in Z5 in recent sessions.
TARIFFS: Trump Threatens Spain With Higher Tariffs Than Rest of EU
"*TRUMP: WILL MAKE SPAIN PAY TWICE AS MUCH IN TRADE DEAL" Bloomberg
GILT AUCTION PREVIEW: On offer next week
The DMO has announced it will be looking to sell GBP5bln of the 4.375% Mar-28 Gilt (ISIN: GB00BSQNRC93) at its auction next Wednesday, July 2.
