US: Trump To Tout 'Affordable' Coal, As WH Pivots To Energy And Deregulation

European government bonds traded mixed Monday, with Bunds outperforming Gilts.

• Futures traded on the back foot overnight as markets weighed the implications of a US Department of Justice criminal investigation of Federal Reserve Chair Powell.
• However bonds bottomed out in early afternoon trade in Europe, and with no major data/headline headwinds resumed the strengthening trend seen last week through to the close.
• In ECB commentary, Muller was typically hawkish saying that there was no reason to reduce rates further in the near-term; Villeroy downplayed prospects of a 2026 rate hike. There was minimal market reaction in both cases.
• The UK curve twist flattened, with Germany's bull flattening. Despite only an incremental fall, 10Y Gilt yield saw its lowest close since December 2024.
• Periphery/semi-core EGB spreads were little changed on the day, with OATs relatively steady despite the French budget minister's comments over the weekend that it's possible a finance bill won't be agreed by March if the government falls.
• There is little in the way of meaningful data in Europe Tuesday, with most global attention being paid to the latest US CPI report. Tuesday's schedule however includes appearances by BOE's Bailey and ECB's Kocher.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.2bps at 2.095%, 5-Yr is down 1.9bps at 2.4%, 10-Yr is down 2.2bps at 2.841%, and 30-Yr is down 2.6bps at 3.436%.
• UK: The 2-Yr yield is up 1.1bps at 3.655%, 5-Yr is up 0.9bps at 3.844%, 10-Yr is down 0.1bps at 4.373%, and 30-Yr is down 1.3bps at 5.107%.
• Italian BTP spread down 0.6bps at 62.7bps / Spanish  up 0.4bps at 39.1bps  

• SOFR & Treasury options flow remained mixed Monday but tended toward better downside put volumes. Underlying futures modestly weaker for the most part (short end near steady). Projected rate cut pricing vs. late Friday levels (*): Jan'26 steady at -1.2bp, Mar'26 at -6.6bp (-7.4bp), Apr'26 at -11.2bp (-11.7bp), Jun'26 at -23.6bp (-25.1bp). 
• SOFR Options:
  • +6,000 SFRZ6 96.50 puts, 8.25 vs. 96.81 to -.815/0.27%
  • +5,000 SFRZ6 96.25/96.31/96.43 2x3x1 put flys, ref 96.8125
  • +6,000 SFRU6 96.25/96.31/96.43 2x3x1 put flys, 1.75 ref 96.745
  • +10,000 SFRM6 96.18/96.25/96.37 2x3x1 put flys, ref 96.585
  • +20,000 SFRH6 97.00 calls, 0.75
  • Update, over +27,000 SFRJ6 96.62/96.75/96.87 call trees, 0.0
  • +1,000 SFRM7/SFRU7 call strip, 0.75 
  • over +38,000 SFRM6 96.37/96.43/96.50 put trees, 1.5-1.75 ref 96.61 to -.595
  • over 16,000 SFRM6 96.43/96.56/96.62/96.75 call condors, 2.5 ref 96.60
  • 5,000 SFRJ6 96.75/96.87 call spds vs. SFRM6 96.68/96.81 call spd spd
  • over +3,000 SFRH6 96.37/0QH6 96.56 put spds, 4 net
  • -4,900 0QG6 96.62/96.75 put spds, 2.5 ref 96.86/0.21%
  • +2,300 SFRH6 96.31/96.37/96.43 put trees, 4.25 vs 96.425/0.16%
  • +7,500 SFRM6 96.37 puts, 1.5 vs. 96.645/0.08%
  • over 7,500 SFRF6 96.50 calls ref 96.405
  • +6,000 SFRM6 96.31/96.37 put spds, 1.0
  • +2,500 SFRH6 96.31/96.37 put spds, 2.75 vs. 96.39/0.10%
  • -2,000 SFRZ6 96.62/96.87 put spds, 13 ref 96.825
  • 2,000 SFRZ6 97.00/97.25 call spds ref 96.82
  • +4,000 SFRG6 96.43/96.50 call spds, 1.25 ref 96.41
  • +3,500 SFRF6 96.37/96.50/96.62 call flys, 3.25
• Treasury Options:
  • Block, +3,500 TYH6 110/TYK6 110.5 8x5 put spd, 1-46 net
  • 2,400 TYH6 111/113 strangles, 32 ref 112-04
  • -9,000 TYG6 111.5 puts, 5 vs. 112-07.5 to -05.5/.08%
  • 2,000 TYG6 111.5 puts vs. TYH6 110/111.5 put spds
  • +1,000 TYG6 111.75/112.25 strangles, 25 vs. 112-07.5/0.08%
  • 2,500 FVG6 109/109.25 1x2 call spds ref 108-31.5
  • +5,750 FVH6 109.25 calls, 19
  • +5,000 USH6 112 puts, 19
  • -3,750 TUH6 104.12 puts, 5
  • 2,500 TYH6 112.5/113 call spds vs. 111 puts, 4 net
  • over -21,700 TYG6 112 puts, 13-16 ref 112-01.5 to -08
  • over 14,000 TYG6 112.5 calls, 13 ref 112-09.5 to -10

• Treasuries look to finish mostly weaker Monday, curves bear steepening with the long end underperforming amid uncertainty over future Federal Reserve independence. This after the DOJ announced it's investigation of Fed Chairman Powell over the weekend related to his testimony before the Senate Banking Committee last June.
• Chairman Powell quickly responded to the criminal indictment threats, in short "this is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation" Powell said.
• Note, geopolitical tensions continue to heat up (or at least simmer) after the US attack on Venezuela, followed by threats to Iran and Greenland.
• Short end rates outperformed as markets continue to anticipate no rate change from the Fed at it's next meeting on January 28. The first full (25bp) cut priced in around June-July.
• Treasuries climbed to session highs after the Tsy 10Y auction re-open stopped through: drawing 4.173% high yield vs. 4.179% WI, but retreated again in late trade as markets set sights on headline CPI inflation metric for December. Currently, the TYH6 contract trades -2.5 at 112-04.5, above a key support at 111-29, the Dec 10 low. A breach of 111-29 would open 111-19 initially, a Fibonacci projection.
• Reminder, the next earnings cycle kicks off in earnest this week with Bank of NY Mellon, JPM reporting on Tuesday January 13, Bank of America, Wells Fargo and Citigroup on Wednesday, Goldman Sachs, Blackrock and Morgan Stanley on Thursday.