EGBs have stabilised somewhat from......>

EGB SUMMARY: EGBs have stabilised somewhat from the morning blowout in periphery

spreads and risk-on move into Bunds, as news flow out of Italy has been

relatively quiet compared with Monday`s bombshells.

- Italian BTPs are hardly out of the woods, though, with the 10-year spread up

48bps over Bunds at 282.2bps, and the 2Y out 170bps to 328.2bps. The Italian

curve has bear flattened massively, 2s10s dropping 150bps since Friday to 55bps.

- Such is the negative sentiment that we have fielded client questions about

whether BTP auctions have ever been cancelled due to market volatility - the

short answer is no; MNI has seen size reduced and other measures, but no

cancellations (since 2011, at least). BTP auction is scheduled for Wednesday.

- 10Y Bund yields have traded in a range of 0.188%-0.353% in a wild session. The

Jun18 future is up 74 ticks at 162.67, benefiting from the risk-off move. The

2s10s Bunds curve is the flattest since June 2017 (100.6bps).

- The long end of the Euribor strip is off its highs, but is still well bid,

with blues up 4-6.5 ticks in a flattening move (reds are 2-2.5 ticks lower).

- Very little data flow today, ECB's Lautenschlaeger and Nowotny speaking later.