BONDS: EGBs-GILTS CASH CLOSE: Early Yield Drop Reverses On Higher Energy Prices

European curves leaned modestly bull flatter Monday.

• Bunds and Gilts gained fairly steadily throughout the session, regaining ground from Friday's sell-off.
• There was no clear upside driver in the morning session, though gains ramped up in the afternoon as equities fell and the USD gained in an apparent risk-off move, while US MNI Chicago PMI came in below-expected.
• Spanish flash December inflation came in above-expected (core 2.6% Y/Y vs 2.4% survey), but there was little market reaction with the main national readings not released until next week.
• ECB's Stournaras eyed gradual rate cuts but that bigger reductions "shouldn't be ruled out" if inflation cooperates.
• Periphery EGB spreads widened by a little under 1bp as equities fell. French OATs underperformed peers, with 10Y spreads widening 2bp.
• As per usual on New Year's Eve, Tuesday's schedule is light, with Irish flash inflation the main scheduled highlight, and widespread market closures in Europe until Thursday.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.8bps at 2.082%, 5-Yr is down 3.6bps at 2.154%, 10-Yr is down 2.9bps at 2.367%, and 30-Yr is down 3bps at 2.597%.
• UK: The 2-Yr yield is down 1.2bps at 4.453%, 5-Yr is down 1.3bps at 4.394%, 10-Yr is down 2.2bps at 4.611%, and 30-Yr is down 0.9bps at 5.173%.
• Italian BTP spread up 0.8bps at 115.5bps  / French OAT up 2.1bps at 83.3bps  

• Stocks remain weaker but are trading off early session lows ahead midday Monday, paring losses after better than expected pending home sales (2.2% vs. 0.8% est) and Dallas Fed Mfg (3.4 vs. -3.0 est) data.
• Major averages continue to see-saw inside trading ranges over the past ten days amid alternating position squaring flow heading into year end. Currently, the DJIA trades down 377.12 points (-0.88%) at 42616.8, S&P E-Minis down 61.5 points (-1.02%) at 5965.75, Nasdaq down 202.1 points (-1%) at 19519.81.
• Consumer Discretionary and Materials sectors leg laggers in the first half, auto-related shares weighing on the former: Tractor Supply -2.45%, Tesla -2.27%, LKQ Inc -2.17% and BorgWarner -1.93%. Metals and mining shares weighed on the Materials sector: Albemarle -2.80%, Newmont Corp -2.33%, Freeport-McMoRan -2.15%.
• On the positive side, Energy and Utility sectors outperformed, oil $ gas stocks buoyed the Energy sector as cride prices inched higher (WTI +0.58 at 71.18): EQT Corp +5.10%, Coterra Energy +3.73%, Devon Energy +2.18%. Meanwhile, independent power providers supported the Utility sector: Constellation Energy +0.14%.

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