German CPI data dominated trading on....>

EGB SUMMARY: German CPI data dominated trading on Tuesday. Weak German State

CPIs were followed by a surprisingly low German HICP of 1.4%Y/Y. Tomorrow, sees

Eurozone CPI data and the signal from Germany was not helpful for the ECB rate

hike.

- While EGB's benefitted from the weak inflation numbers, the moves were

controlled. Not surprisingly, linker breakevens declined; the OATei 10Y dipped

2bp to a 3 week low at 1.42%.

- On the supply front, Italy sold BTPs into fairly weak demand for the new 10Y

benchmark. The auction helped to nix out a good compression in the Bund-BTP

spread. Even the massive Spanish and Italian redemption/coupon payments this

week are struggling to help. 

- Swap flows showed a prevalence strong of EUR steepener trades.

- Heading into the close, the 2Y Schatz was down 0.3bp at -0.528%, the 10Y

-1.2bp at 0.682%. Wednesday is setting itself up for considerable volatility

with potentially large asset class rebalancing, the usual month-end duration

extensions, the all-important Eurozone CPI and various unemployment rates.