US CREDIT SUPPLY: PNC Financial Services $Bmark Debt Offering GUIDANCE

Cash EGBs picked up a late bid Monday, mitigating an earlier rise in yields.

• Core FI started off the session on the back foot in a continuation of last week's BOE/ECB-influenced price action. 10Y German yields briefly moved above 2.90% for the first time since March and were above that level just 15 minutes before the close.
• ECB's Schnabel told a FAZ podcast released Monday that "at the moment, no interest rate increase is to be expected in the foreseeable future... I didn’t say that interest rates should be raised...but rather that they shouldn’t be lowered again. That’s a very important distinction" (as quoted by Bloomberg).
• Those comments were interpreted as tempering hawkish perceptions of her remarks from earlier in the month when she said she was "rather comfortable" with the market's modestly-implied 2026 hikes. They made headlines just before the cash close, depressing EGB yields across the curve.
• Gilts twist steepened on the day, with a slight uptick in long-end yields carrying on from Friday's trade but remaining within the month's ranges. Final Q3 UK GDP data met expectations.
• Periphery / semi-core EGB spreads mostly closed wider of Bunds, though OAT spreads held in, with a French official expressing confidence that a 2026 budget will be agreed after negotiations resume in January.
• This week's schedule is thin due to upcoming holidays, with only 2nd tier data this side of Christmas.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.6bps at 2.148%, 5-Yr is down 0.3bps at 2.485%, 10-Yr is up 0.2bps at 2.897%, and 30-Yr is down 0.4bps at 3.532%.
• UK: The 2-Yr yield is down 0.8bps at 3.745%, 5-Yr is up 0.5bps at 3.976%, 10-Yr is up 1.2bps at 4.536%, and 30-Yr is up 1.6bps at 5.271%.
• Italian BTP spread up 1.2bps at 70.2bps / French OAT down 0.1bps at 71.5bps  

Tsy futures are holding a lower/narrow range, curves mildly flatter (2s10s -0.114 at 66.046) ahead of the $69B 2Y note auction (91282CPS5) at 1300ET, WI currently at 3.492% -- 0.3bp cheap to last months tail: 

• November recap: Tsy futures scaled off highs after the $69B 2Y note auction (91282CPL9) tailed slightly: 3.489% high yield vs. 3.487% WI; 2.68x bid-to-cover vs. 2.59x prior.
• Peripheral stats: Indirect take-up rose to 58.07% from 53.65% prior, directs up to 30.74% vs. 34.77% prior, primary dealer take-up 11.18% vs. 11.58% prior.

ECB’s Schnabel has said in a FAZ podcast that she didn’t say rates should be raised and that she doesn’t expect rate hikes for the foreseeable future with rates probably stable for quite some time. 

• A reminder of her remarks from Dec 8: "Interest rates are in a good place, and in the absence of larger shocks, I expect them to stay in this place for some time. The distribution of inflation risks has shifted to the upside, and accordingly, both markets and survey participants expect that the next rate move is going to be a hike, albeit not anytime soon."
• When then asked on market expectations for a hike she had said "I’m rather comfortable with those expectations”, but it’s worth remembering that these were for marginal hiking expectations come end-2026.