What to watch

There has been a risk-off start to the week through the Asian and early European sessions. As our overnight team notes, a combination of Senator Manchin sinking Biden's BBB plan and a lockdown in the Netherlands (alongside increased prospects of deeper COVID restrictions across Europe & the UK) has painted a pessimistic picture.

• Overnight we have seen the Eurodollar strip flatten through the Whites with Reds onwards 5-6 ticks higher versus last week's close. The Euribor strip has moved 0.5-2.0 ticks higher this morning.
• In line with the the moves seen in core FI, peripheral spreads have widened in Europe, with BTP-Bund spreads 3.0bp wider on the day.
• Looking to the rest of the day, we are likely to see holiday-induced low liquidity trading conditions and with no tier 1 data we are likely to be closely following any political headlines pointing to any further government restrictions. As we note above, further post-Christmas (or even pre-Christmas) restrictions could be brought in, particularly in the UK, with Omicron cases rising very quickly. Restrictions range from 14-day circuit break lockdowns to limits on household spending or early closes to pubs/restaurants.