A 20bps blowout in 10Y Italian BTP......>

EGB SUMMARY: A 20bps blowout in 10Y Italian BTP spreads over Bunds through early

afternoon came back a bit following newswire headline that cancellation of

Italian debt is not on the coalition govt programme, now trading up 17bps at

148bps. Still, that would be the highest daily close since 10 Jan and the chart

damage has been done, with the 12-month downtrend decisively broken.

- In mirror-like fashion Bunds rallied as BTPs sank, but fell sharply later in

the day, with the Jun18 future up 34 ticks to 158.10, 40 ticks below the high.

- Having steepened early on, Bunds 2s10s came back down sharply between

1300-1400GMT, before settling 1bps lower at 118bps. 5s-10s area outperformed,

while the long-end lagged, with 10s30s up 1.5bps to 67.8bps.

- Other periphery spreads hit multi-month highs but came back alongside Italy.

Spanish Bonos and Portuguese PGBs 8bps each v Bunds. Greek 10s spread out 27bps.

- The story was similar in Euribor futures, which while there was little

movement when all was said and done, saw an initial risk-off rally pared back

later in the day. Greens outperformed, up 1-1.5 ticks, with Reds and Blues up

0.5-1.0.