If the rule of markets is that..........>

EGB SUMMARY: If the rule of markets is that they'll go where the pain is

greatest, then perhaps the market was long, anticipating large month-end index

extensions or asset class rebalancing would favour bonds. However, the 10Y Bund

yield s 5.4bp higher at 0.683%, with a slightly larger move in the UST to 2.72%.

- Markets have responded to Klaas Knot comments that he wants APP to conclude as

soon as possible, to a Goldmans piece that the FOMC would upgrade the Statement

language regarding growth on Wednesday.

- USD swap markets are suffering more than almost anything else because of MBS

convexity hedging threats in the new rate environment.

- Peripheral EGB markets have been somewhat insulated from the rise in global

yields. The Spanish 10Y yield is performing best with only +1.3bp on the 10Y

SPGB. There is a supply announcement due at 1300GMT today.

- Globally, the bearish environment is leading yield curves steeper. The 2-10Y

German spread is +2.2bp at 120bp, its highest since last July. The 2-5-10Y fly

is also at 6 month highs.