BBB and potential further UK/European Covid restrictions lead FI higher

Risk-off due to the failure of Biden's BBB plan and continued elevated concerns of further government-imposed Covid-19 restrictions across the UK and Europe (and the announcement of the Dutch lockdown) have all pulled core fixed income higher.

• The UST curve has steepened, with larger moves having been seen at the short-end. Eurodollar Reds/Greens are up 4.5-5.0 ticks on the day as some future Fed hikes are pushed further out in expectation of a lower level of government spending.
• A similar steepening has been seen in the gilt curve, but more due to rate hike expectations being pushed back due to concerns about a post-Christmas lockdown, with a number of newspapers talking up the options ministers are said to be discussing this morning.
• The German curve has bull flattened a little, in contrast. 10-year Bunds have moved in line with 10-year gilts but with little expected in terms of near-term hikes, Schatz yields have moved less. Peripheral spreads, particularly BTP-Bund spreads, have widened a little.
• TY1 futures are up 0-8 today at 131-13+ with 10y UST yields down -2.3bp at 1.381% and 2y yields down -3.5bp at 0.605%.
• Bund futures are up 0.16 today at 174.59 with 10y Bund yields down -0.5bp at -0.386% and Schatz yields down -1.2bp at -0.738%.
• Gilt futures are up 0.34 today at 127.22 with 10y yields down -2.2bp at 0.734% and 2y yields down -0.7bp at 0.491%.