Bunds were beaten up hard on Thursday...>

EGB SUMMARY: Bunds were beaten up hard on Thursday and it is difficult to

pin-point the exact reason for the move. Most of the damage occurred soon after

the European Commission upgraded their GDP forecasts for Europe. 

- While admitting that a growth upgrade has been a rare event lately, the size

of the market reaction was excessive. Sources spoke of algos pushing the Bund

lower and another trader at a large European bank noted that the post-ECB

long-Europe, short USTs was being unwound. This certainly fitted the fact that

EGBs weakened but Treasuries did not respond.

- Yet, while Bunds were the target of sellers in the afternoon, the selling was

rolling around different issuers earlier in the session. Spain was first to get

hit, alongside Ireland, then Italy and then eventually the core and semi-core.

- Heading into the European close, the German curve had aggressively bear

steepened: the 2Y +1.5bp to -0.748%, 10Y +5.2bp to 0.378% and 30Y +6.2bp to

1.266%. As the bear steepening accelerated, some long end EUR swap receiving

showed up and appeared to calm the market.