MNI US MARKETS ANALYSIS - EGBs Weaken Towards Year End

US TSYS SUMMARY: Twist Steepening On Surging But Milder Omicron Cases

• Cash Tsys have twist steepened today, led by the longer end, as markets weigh up the impact of surging but seemingly less severe Omicron cases.
• 2Y yields are -0.8bps at 0.742%, 5Y -0.2bps at 1.258%, 10Y +1.2bps at 1.493% and 30Y +1.6bps at 1.916%.
• Tsys outperform core Europe in 10Y space, with the +1.2bps sell-off vs Bunds +1.7bps, OATs +2.6bps and Gilts +4.8bps.
• TYH2 has sold off with London coming in, unwinding a small rally overnight to leave it -0-01+ at 130-18, a level close to where it has found some support over the past four trading days amidst low volumes.
• A string of non-tier one data releases today: wholesale and retail inventories, advanced trade and pending home sales all for Nov.
• US Tsy $40B 119D bill CMB auction and $24B 2Y FRN note auction re-open (1130ET) before $56B 7Y Note auction (1300ET). There was a second consecutive auction tail with yesterday's 5Y note.

EGB/GILT SUMMARY: Still Offered

European government bonds have sold off this morning with gilts leading the charge. Absent any obvious catalysts, the move likely reflects a reassessment of the Omicron variant.

• Gilt yields are now 4-5bp higher with the curve slightly bear steepening.
• The long-end of the bund curve has similarly underperformed with the 2s30s spread widening 5bp.
• The OAT curve has steepened further as a result of the short-end going bid and the longer-end selling off. 2s30s is now 7bp wider.
• BTPs have similarly traded weaker with cash yields 3-5bp higher on the day and the belly of the curve slightly underperforming.
• Speaking to Sky News earlier, UK PM Boris Johnson stated that the Omicron variant appears to be milder than the Delta strain of Covid-19, reiterating recent indications that the current wave may be less severe than initially feared.
• Greece sold EUR487.5mn of 6-month bills at an average yield of -0.46% and bid-to-cover of 2.98x.
• The Netherlands announced that it will sell up to EUR1.5bn of 4-month DTCs and EUR1.55bn of 6-month DTCs at the scheduled Jan 3 auction.

EUROPEAN SOVEREIGN ISSUANCE UPDATE

Greece Sells EUR487.5mn of 6-Month Bills

• Average yield -0.46%, bid-to-cover 2.98x

FOREX: Dollar Holds Firm

While the USD has gained across the board against DM FX, price action has been relatively contained during the European morning session.

• Dollar gains come amid a mixed performance in equities and a sell-off in European government bonds, with the latter potentially reflecting a shift in sentiment with respect to the Omicron variant, which now appears less deadly than initially feared despite surging case volumes.
• Scandinavian currencies have marginally underperformed, while USDCAD is close to flat on the day.
• In the EM space, TRY remains under pressure and off 5% against the dollar. The most recent weekly FX reserve data showing that the CBRT has been drawing down foreign currency holdings through the end of November and into December.