Italian BTPs have faded early gains.....>

EGB SUMMARY: Italian BTPs have faded early gains but largely shrugged off Rome`s

reply to Brussels` budget concerns.

- The Italian response to the EU`s budget letter was more or less as expected,

with no backing down on deficit targets. However, PM Conte and Fin Min Tria made

conciliatory comments, and BTPs reversed an initial sell-off.

- Dec 18 BTP future is up 111 ticks at 121.3, but well off highs, having traded

in a range of 120.77 (touched post-Treasury statement) to 122.74.

- Bund futures down 31 ticks at 159.09, off lows of 158.84. German curve a

little steeper: 2-Yr yield down 0.3bps at -0.583%, 10-Yr up 0.6bps at 0.466%.

- The EGB periphery rally has fizzled alongside Italy, with 10-Yr BTP/Bund

spread down 4.8bps at 297.5bps after narrowing as much as 20bps earlier. - -

10-Yr Spanish/German spread down 5.4bps at 122.1bps. Portugal down 3.4bps at

152.5bps, Greece down 4.3bps at 384.9bps.

- Euribor futures are a bit weaker, focused on Green and Blue portions of the

strip, off 2.5-3.0 ticks.

- Dearth of data today; focus on EU`s next steps on Italy to be taken Tuesday.