Core and semi-core European debt........>

EGB SUMMARY: Core and semi-core European debt market yields are generally higher

today but peripheral markets have been buoyed by the somewhat surprising upgrade

to Spain's credit rating by Fitch.

- Initially, the German market appeared buoyed by the SPD executive vote to

enter into formal Grand Coalition talks with the CDU/CSU but the market

commentary has mostly pointed out the thin majority of the vote in favour

(56.4%) and how that makes the next stages of the process uncertain.

- Bunds and (particularly) the semi-core ran into some selling as the morning

European session progressed. Only when news that the Barclays month-end index

extensions will be fairly robust at the end of the month (0.08 for pan euro

aggregate) did the EGB market reverse some of its losses.

- Spanish debt was very well bid early on, tightening the spread to Germany by

around 6bp at 10Y before giving up some of the gains. Currently, the 10Y spread

compression to Bunds for Spain, Italy and Portugal are 2.2bp, 1.8bp and 2.5bp

respectively.

- The German curve is 1bp steeper as the 10Y rises 1.3bp to 0.581%