LOOK AHEAD: Monday-Tuesday Data Calendar

Wednesday's Europe rates/bond options flow included:

• DUH4 106.40/106.60cs sold at 4.5 in 5k (closing position)
• DUH4 106.40c sold at 10.5 and 11 in 9.5k (closing position)
• DUH4 105.30/105.50/105.70/105.90p condor, sold at 5 in 3.4k
• ERU4 96.87/97.25/97.37/97.75c condor vs 96.50p, bought the condor for 4.5 in 7.5k

House Speaker Mike Johnson (R-LA) has used his first formal speech on the floor of the House of Representatives to pan the Biden administration's US-Mexico border policy and advocate for impeachment of Department of Homeland Security Secretary Alejandro Mayorkas, which was advanced from a House committee yesterday.

• Johnson outlined, "64 Biden actions to weaken border," including "unilaterally" terminating work on the Trump administration's US-Mexico border wall, and argued that Biden can "secure the border immediately" through executive action, a claim which the White House rejects.
• In a sign of the current polarisation in Congress, Johnson says if border crossings are, "anything higher than zero," then the policy is a failure.
• The highly combative speech gives little indication that Johnson has softened his opposition to a bipartisan Senate deal to overhaul policy at the border, despite the fact that the final text of the bill hasn't yet been released.
• Opposition from Johnson and Trump supporters suggests that, regardless of the contents of the bill, the House is likely to reject the deal, call for more hardline measures, and keep the issue live ahead of the general election.
• Johnson again states that the House-passed HR2 "Secure the Border Act" is ready and waiting for a Senate vote. Note: Senate Majority Leader Chuck Schumer (D-NY) has dismissed outright the prospect of considering HR2.
• If the House maintains opposition to the bipartisan Senate border deal, then the fate of President Biden's USD$110 billion supplemental package, which includes funding for Ukraine and other US allies, is uncertain.

European core FI rallied strongly Wednesday in a session beset with heavy data flow and event risk.

• Early focus was on French inflation data which came in on the soft side of expectations, with German state level readings later in the morning pointing to a largely in-line national print.
• While the initial Bund gains faded by late morning, European safe havens enjoyed their best rally of 2024 so far as Treasuries soared.
• Multiple factors were involved: weakness in banking equities, an as-expected US Treasury quarterly auction size announcement removing some uncertainty, and soft US labour market indicators and January MNI Chicago PMI raising potential for near-term rate cuts.
• The rally in both the German and UK curves was led by the belly, with 5Y yields down 11bp.
• Periphery EGB spreads widened amid a broader risk-off move; GGBs underperformed.
• The Federal Reserve decision takes focus after the European cash close, with attention set to swiftly turn to Italian/Eurozone inflation data Thursday morning (consensus remains relatively unchanged since the start of the week), followed by the Bank of England.
• MNI's BoE preview is here: the vote split, guidance and forecasts will be in focus.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 10bps at 2.428%, 5-Yr is down 11.3bps at 2.051%, 10-Yr is down 10.2bps at 2.166%, and 30-Yr is down 9.1bps at 2.405%.
• UK: The 2-Yr yield is down 8.1bps at 4.258%, 5-Yr is down 11.2bps at 3.745%, 10-Yr is down 10.7bps at 3.794%, and 30-Yr is down 7.4bps at 4.456%.
• Italian BTP spread up 3.3bps at 156.2bps / Greek up 3.9bps at 104.9bps