Markets have calmed down modestly......>

BOND SUMMARY: Markets have calmed down modestly from the post-UK/US holiday

blowout in risk assets this morning, but Italy spreads remain much wider

(10Y/Bund 51bps wider at 285bps) and liquidity appears dangerously thin. 

- In one of the wildest sessions for Italian debt in years, the 2Y BTP yield

rose nearly 200bps at one point, now up 151bps to 2.42%; 10Y fared relatively

well, up `just` 75bps at the high, now up 41bps to 3.09%. Market has been

characterised by extremely wide bid-asks.

- Poor Italy BOT auction this morning (1.2x cover) but at least did not fail,

potentially relieving the worst fears and allowing Italian debt a reprieve.

- Gilts, Bunds, and USTs have rallied in a flight to safety, but Gilts stood out

for a sudden sell-off mid-morning on no apparent trigger. 10Ys: UST yield down

8.3bps at 2.85%; Bund down 10bps at 2.44%;  Gilt down 12bps at 1.20%. JGB down

1bps at 0.03%. Decent bullish curve flattening across the board.

- Rate futures rallying across the strip, Short Sterling and Eurodollars

catching up after market close yesterday. Long-term downtrends being broken,

suggesting more dovish rate expectations.