A relief rally following Friday and....>

BOND SUMMARY: A relief rally following Friday and Monday`s Turkey-induced risk

aversion has faded somewhat, but safe-haven bonds remain under pressure.

- JGBs sold off sharply, reversing Monday's gains, with losses concentrated in

the long end of the curve. 30-yr and 40-yr JGB yields are 0.15bps and 0.2bps

higher, respectively, pushing back toward August`s highs.

- Gilts had a muted reaction to mixed UK labour data, with the unemployment rate

lower than consensus, but weak earnings. Sep8 future down 10 ticks at 123.29.

- Heavy data flow out of Europe including strong German ZEW and EMU flash Q2 GDP

has underpinned risk appetite, with periphery EGBs rallying sharply.

- Italian BTPs are the biggest beneficiary, yields on the 2-yr down 7.7bps at

1.254% and the 10-yr down 5.4pp at 3.0474%, inching down from 10-week highs. 

- German Bund yields are a little higher, 10-yrs by 1.3bps to 0.324%, albeit

down from 0.334% high. Curve is slightly steeper, with 2-yrs 0.8bps higher.

- US Tsys are weaker: 2-yr yields 2bps up at 2.633%, 10-yrs up 1.5bps at 2.893%.

- Euribor futures are fairly static, but Short Sterling is off 2 ticks between

Sep9-Jun0, and Eurodollars are 3-4 ticks weaker from Jun9 onward.