- German bunds have traded sideways.....>

EGB SUMMARY: - German bunds have traded sideways for most of the day with the

curve flattening slightly. Current yields: 2-year -0.587%, 10-year 0.364%,

30-year 1.0295%. The 2s10s spread has narrowed 1bps from the high.

- The selloff in French OATS petered out by mid-morning with the short-end then

trading sideways and the longer-end rallying towards opening levels. The curve

has flattened on the day with 2s30s trading down to 212.2bps from a high of

213.6bps.

- Despite an erroneous news headline on the budget earlier in the day, BTPs have

rallied throughout the session. The benchmark 2-year yield has pushed down to

1.158% from 1.350% and is hovering around the lows of the day. This comes

despite an official rebuke from the EU on the Italian government's budget plans

and the prospect of excessive deficit procedures being applied.

- Brussels also fired a warning shot at the Spanish government, warning that

there are stability risks with respect to the current budget plan. The long end

of the Spanish curve has rallied with the 10-year yield edging down to 1.628%

from a high of 1.647%.