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10-year EGB spreads to Bunds are within 0.5bps of Friday’s closing levels, with GGBs modestly outperforming. 

• The OAT/Bund spread remains at 78bps, following last week’s general policy address and unsuccessful censure motion against the Bayrou government.
• PM Bayrou’s survival has removed some short-term political uncertainty, allowing a little risk premium to be priced out of OATs (the spread reached a closing high of 84bps last Monday).
• However, medium-term political and fiscal risks remain prevalent in France and the passing of a budget (touted for the end of January) is the next hurdle for Bayrou.
• The BTP/Bund spread is currently 111bps. Last week’s softer-than-expected US CPI drove a pullback in year-end ECB implied rates and a renewed rally in European equities, helping the spread fully unwind its early-January widening.
• A reminder that MNI looks for syndications from Austria, Finland and Spain this week. Books are already open for today’s dual-trance 3/10-year EFSF transaction.

Skittish early Monday trade, with EGBs digesting familiar rhetoric from the hawkish wing of the ECB (Schnabel & Holzmann), while looking ahead to Trump’s inauguration.

• German & UK yields within 1bp of Friday’s close across the curve.
• The observance of the MLK holiday in the U.S. means that cash Tsys are closed until Asia hours.

Of note:

EURUSD 1.4bn at 1.0300/1.0325.

EURUSD 2.5bn at 1.0300/1.0325 (tue).

USDJPY 1.3bn at 156.00 (tue).

AUDUSD 1.69bn at 0.6210 (wed).

EURUSD 3.24bn at 1.0295/1.0320 (thu).

• EURUSD: 1.0300 (1.02bn), 1.0325 (475mln).
• AUDUSD: 0.6185 (550mln).
• NZDUSD: 0.5660 (329mln).
• USDZAR: 18.7000 (300mln).