Majority of bonds are trading lower....>

BOND SUMMARY: Majority of bonds are trading lower with the exception of EMU

periphery which are modestly higher, as agreement between Merkel and Seehofer

leads to a risk-on tone in markets.

- German Bunds have extended lower opening move weighed by news that Merkel and

Seehofer came to a deal in the migration issue, removing the small risk of a

breakup in the coalition government. 10-yr Bund is +1.8bp at 0.322% with belly

of the yield curve seen underperforming the wings.

- Italy is leading the rest of the EMU Periphery higher as funds look to pare

back short positions. 10-yr Bund/BTP 4.4bp tighter at 230.3bps.

- US Treasuries have reversed small rally seen in Asia on the back of the fall

in German Bunds and UK Gilts on news of the Merkel/Seehofer deal. Earlier, US

Tsys rose to session highs on back of weaker yuan. 10-yr TSy is unch at 2.871%

with yield curve ever so slightly steeper.

- UK Gilts are underperforming both US Tsys and Bunds as UK 10-yr Gilt supply is

also seen weighing on sentiment, while markets brush-off Brexit concerns for

now. 10-yr Gilt is +3.3bp at 1.289% and is leading the rest of the curve higher.