GERMANY: Furore Over Judge's Appointment Exposes Coalition Cracks

• US TSY 17W AUCTION: NON-COMP BIDS $564 MLN FROM $60.000 BLN TOTAL

European Commissioner for Trade and Economic Security Maros Sefcovic has confirmed the EU, UK and Spain have reached an agreement on the status of the British Overseas Territory of Gibraltar. Reuters reports the UK Foreign Office says that "The UK, alongside the gov't of Gibraltar, reaches a political agreement with the EU to protect British sovereignty, UK military authority, and secure Gibraltar's economic future. The agreement provides a practical solution to avoid the need for 'onerous checks' and long delays at the border." 

• The joint statement confirms that "the Parties agreed to establish dual Gibraltar and Schengen border checks at Gibraltar port and airport – to be carried out in full cooperation between the EU and UK/Gibraltar authorities, removing all checks at the crossing point between Gibraltar and La Linea [...]. For the EU, full Schengen checks will be carried out by Spain. For the UK, full Gibraltar checks will continue to be carried out as they are today. " The Daily Telegraph reported earlier the system will mirror that used for the Eurostar train service, with UK border guards checking passports first, then French (or in Gibraltar's case, Spanish) guards checking on British soil to ensure a frictionless exit.
• For the UK, retaining Gibraltar's ability to act as a strategic military base has been of paramount concern. It remains to be seen how Spain effectively policing entry to the British territory affects the operations of the UK armed forces on the rock. 

Gilts have traded off cues from the U.S. this afternoon.

• The government’s spending review proved to be a non-event for markets, as we suggested would be the case.
• U.S. CPI data had a much more meaningful impact, pulling gilts away from session lows.
• Bears never manged to close yesterday’s opening gap higher in futures (92.00), leaving the recent bearish impulse intact. Initial resistance remains at yesterday’s high (92.87) after a recovery to ~92.60.
• Yields flat to 3bp higher, curve holds steeper.
• BoE-dated OIS shows ~49bp of cuts through year-end, little changed on the day, after printing ~46bp at one stage. Next 25bp cut fully discounted through September.
• SONIA futures now either side of unchanged, -0.25 to +1.5, no major range breaks seen.
• Monthly economic activity data headlines tomorrow’s UK calendar, with inflation expectations due Friday.