US: FED Reverse Repo Operation

Trade remains mixed while weakness in the underlying has extended through the Whites to Reds (SFRU4-SFRM6). Projected rate cut pricing into year end recede vs. early morning levels (*) post-CPI: Sep'24 cumulative -36bp (-39.7bp), Nov'24 cumulative -70.1bp (-74.2bp), Dec'24 -104.4bp (-108.1bp). Salient flow:

• 5,000 0QH4/3QH4 96.00 put spd, 0.5 conditional steepener
• +5,000 2QQ4 96.87 calls, 8.5 vs. 96.935/0.65%
• +6,000 SFRZ5 95.75/96.00/96.25/96.50 put condors, 4.0 ref 96.89
• +10,000 SFRZ4 95.62/95.75/95.87 calls, 1.5 vs. 95.72/0.05%

Wires carrying comments from Ukrainian President Volodymyr Zelenskyy stating that, "Ukraine is achieving its strategic goal in operation in Kursk region," after the Ukrainian military had a "good advance" on Wednesday."

• Reuters notes that Zelenskyy also appealed to allies, "to allow long-range strikes on targets inside Russia."
• AP notes that Italian Foreign Minister Antonio Tajani today insisted that the weapons his country sends “cannot be used to attack Russia on its territory.”
• So far, other NATO backers have been tight-lipped about changing the parameters placed on the use of Western-supplied weapons. Throughout the war, the US has gradually eased restrictions on certain weapons as the battlefield situation has evolved. Earlier in the war, the provision of long-range missiles, advanced battle tanks, and fighter planes were all denied to Kyiv on grounds they could escalate the conflict.
• In June, the US eased restrictions on long-range missiles to allow Kyiv to hit some targets within Russia. At the time White House National Security Advisor Jake Sullivan said new guidance, "extends to anywhere that Russian forces are coming across the border from the Russian side to the Ukrainian side to try to take additional Ukrainian territory," adding that it’s “not about geography. It’s about common sense.”
• Sky News notes: "Senior Kyiv officials said today Ukraine was creating a "buffer zone" in the Kursk region and plans to organise humanitarian assistance and evacuation corridors for civilians looking to go either to Russia or to Ukraine."

Gilts outperformed global peers Wednesday as UK inflation data came in softer than expected.

• Core instruments strengthened in early trade after UK July CPI aggregates came in lower than expected, though the print didn't look as soft once volatile components (eg airfares) were excluded, and the initial rally faded.
• Later on in the session, US CPI came in largely in line with expectations, initially triggering a dovish reaction in global core FI which quickly reversed, but overall its impact on price action was neutral.
• The German curve twist flattened, with the UK curve bull flattening. 10Y Gilt yields saw their lowest close since Feb 1.
• Periphery EGB spreads closed mixed, with BTPs outperforming and GGBs underperforming in a fairly directionless day for risk assets.
• The UK data parade continues Thursday with Q2 GDP data; the schedule also includes the Norges Bank decision.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.4bps at 2.354%, 5-Yr is up 0.1bps at 2.092%, 10-Yr is down 0.6bps at 2.18%, and 30-Yr is down 0.5bps at 2.423%.
• UK: The 2-Yr yield is down 3.9bps at 3.566%, 5-Yr is down 6.3bps at 3.617%, 10-Yr is down 6.3bps at 3.825%, and 30-Yr is down 6.7bps at 4.402%.
• Italian BTP spread down 0.6bps at 138.4bps / Spanish down 0.4bps at 84bps