Bunds lifted off in London afternoon....>

EGB SUMMARY: Bunds lifted off in London afternoon session, supported by rally in

US Treasuries in wake of sharp fall in GM auto sales, failure of the Dow to

break above 22k level and despite in-line US data.

- Majority of EGB curves are bull flattening as long-ends outperform. German

10-yr yield currently 4.9bp lower at 0.493%.

- After a slow start Bunds drifted higher, curves bull flattened helped by

Consistent but small buying out the German curve in illiquid summer markets,

decent demand at both 10-yr Gilt and 2-yr Schatz auction then helped Bunds tick

higher. Some also suggested market tried to go short into month-end/supply and

were now covering those positions.

- Bunds faded at start of NY session, tracking Tsys lower on back of in-line

personal spending and tick higher in PCE core. However market turned sharply on

15% fall in GM auto sales, small ISM miss and fall in construction spending.

- EMU periphery gave up earlier gains versus German Bunds as support from large

Spain and Italy redemptions diminished while Bunds squeeze higher. Markets also

looking ahead to Spain supply on Thursday. Spain/German 10-yr spread is 0.8bp