EGBs are trading with a cautiously......>

EGB SUMMARY: EGBs are trading with a cautiously risk-on tone, with Italian

spreads edging lower for the second consecutive day, BTP 10Ys last 16.3bps lower

vs Bunds, at 237.0bps. The Italy 2s10s spread has given up some of its earlier

steepening, but with 2s rallying 42bps and 10s by 20bps, curve remains steeper.

- 10Y Bund yields up 0.5bps at 0.377%. EMU May flash HICP of 1.9% was above the

median 1.6% forecast but Bunds rallied by 3bps after the data. But consensus was

probably out of date after higher-than-expected German inflation on Weds.

- Markets appear hopeful that a new government with a non-eurosceptic Finance

Minister (ie not Savona) can be installed in the coming days, though the

configuration (and thus policy) remains a big question mark, with M5S, Brothers

of Italy, and Lega each in the mix. 

- Periphery spreads are narrower across the board, with Spanish 10Y in 4.8bps

(shrugging off looming no-confidence vote in PM Rajoy), Portugal in 6.0bps, and

Greece in 8.0bps.

- Mainly US data (including MNI Chicago PMI at 1345BST) and speakers to watch

the rest of the day, as well of course as the unfolding situation in Rome.