Despite some misplaced concerns over....>

EGB SUMMARY: Despite some misplaced concerns over Italian politics in

mid-afternoon, periphery EGB spreads finished broadly tighter, while Bunds were

slightly weaker in another day characterised by thin volumes.

- BTP spreads spiked on the back of a Reuters report claiming Italian EU Affairs

Minister Paolo Savona said `it may depend on others whether Italy stays in the

euro`, but this was clarified as meaning `Italy needs to be ready if others exit

the euro`, and the panic subsided. After an initial widening in 10-Year BTPs by

5bps to 239.5bps vs Bunds, the spread is back flat on the day at 236.4bps.

- Bunds slightly weaker, with Sep8 future off 18 ticks at 162.43, but up from

the low of 162.26. 2s10s curve 0.8bps steeper at 95.2bps.

- Euribor futures have barely moved since an initial drop to open the day. The

biggest move was in Green and Blue contracts, which remain 1.0-1.5 ticks lower.

- Despite potential supply concerns ahead of Wednesday's auction of Oct-28 and

Apr-34 PGBs, 10-year Portuguese yields are down 2.8bps to 1.755%, outperforming

the rest of the periphery and now 4.2bps tighter to Bunds at 144.0bps.

- Busy ECB speaker calendar Wednesday, with Draghi, Praet, Mersch and Nouy up.