BRAZIL: Trade Surplus Below Expectations In January

• WI has receded to 4.922% from 4.939% earlier heading into the $22B 30Y auction re-open (912810UE6) cutoff at 1300ET, 38.7bp cheap to last month's tail: 4.535% high yield vs. 4.523% WI.
• Treasury futures still weaker but off session lows (TYH5 -.5 at 108-05), curves steeper: 2s10s +1.047 at 40.019, 5s30s +0.599 at 45.227.

Wednesday's Europe rates/bond options flow included:

• DUH5 106.80/107.00/107.20 call fly, bought for 2.75 in 3.6k
• RXG5 135c, bought for 4 up to 4.5 in 10k
• RX W2 130.5/129.5ps 3x5 sold the 3 at -7 in 2.7k x 4.5k. (weekly Bund)
• 0RK5/0RM5 98/98.25/98.37 broken c fly strip, bought for 10.75 in 2k
• SFIM5 96.15/96.45/96.75c fly, bought for 2 in 6k total
• SFIU5 96.05/96.25cs vs 95.50/95.30ps, bought the cs for 0.25 in 1k
• SFIU5 96.00/96.10cs vs 95.50/95.40ps, bought the cs for half in 2k

Gilts led a long-end selloff in the European government bond space Wednesday.

• A combination of weaker global long-duration bonds and UK-specific structural issues saw Gilts sell off sharply for a second consecutive session: 10Y yields hit the highest since 2008, with 30Y at fresh post-1998 highs.
• Bunds weakened in sympathy, with the softness in global core FI exacerbated by solid US jobless claims data, as well as dollar gains on overnight reports that Pres-elect Trump would make an emergency tariff declaration.
• Heavy supply also weighed, including Gilt, Bund, and Italian issuance, with French/Spanish auctions anticipated Thursday.
• German Factory orders and retail sales missed versus consensus but this did not move markets.
• Both the UK and German curves bear steepened. Semi-core/periphery EGB spreads narrowed slightly, however.
• Thursday sees the aforementioned supply, plus multiple data points including UK BRC shop price index, DMP inflation expectations, and KPMPG/REC jobs report, along with German trade/regional CPI.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.5bps at 2.201%, 5-Yr is up 2bps at 2.298%, 10-Yr is up 6.6bps at 2.549%, and 30-Yr is up 4.7bps at 2.764%.
• UK: The 2-Yr yield is up 4.5bps at 4.516%, 5-Yr is up 7.4bps at 4.523%, 10-Yr is up 11.3bps at 4.796%, and 30-Yr is up 10.9bps at 5.355%.
• Italian BTP spread down 1.7bps at 113bps / French OAT  down 1.8bps at 80.5bps