Morning trade started with a firm bid...>

EGB SUMMARY: Morning trade started with a firm bid to peripheral European debt

markets but then core markets weakened slightly in the lead up to the Dutch DDA

auction.

- It quickly became clear that the DDA was building a large order book and EGB

yields declined suddenly and rapidly. Volumes were very heavy in the Bobl

contract leading the 5Y German swap spread and particularly the Bobl invoice

spread wider. However, the big swap spread movements are concentrated in the

dollar market and the 2Y in particular.

- The Italian auction was a mixed affair with light bidding for the new 7Y TP

but the 30Y did well. Since the Italian Treasury allocated only E0.96bln to the

2018 the 30Y sectors of peripheral curves leapt higher.

- Despite the Dutch auction, there has been very little movement in German vs

semi-core markets.

- ECB's Lane said he saw encouraging signs on wage growth but that the ECB

should be alert to FX volatility.