Initially, EGBs were rallying from......>

EGB SUMMARY: Initially, EGBs were rallying from the market open on the relief

that the Fed had not overdone it on the hawkishness.

- Through the morning a number of weaker-than-expected European PMI releases

added gusto to the strong debt market alongside a decent RXM8 block trade. 

- The Bank of England's decision, Minutes etc did not materially alter the

discounted path of the UK bank rate but after an initial dip in the Bund, the

contract leapt higher still, setting off stops. Equities also began to weaken

substantially at this point.

- In the European afternoon, attention turned to the trade spat developing with

China. Yet another reason to buy core bonds. However, at this point the

peripheral European debt started to fold, although the size of the widening was

small.

- At the back end of last week, most commentary was Bund bullish and our

positioning indicator suggested a very long position in the Bund contract. Given

that, the high volume 6.7bp decline in the Bund yield to 0.525% was a 2.5

standard deviation is particularly significant.