Over the past month, the 2Y Schatz......>

EGB SUMMARY: Over the past month, the 2Y Schatz has declined slowly but surely

and the curve has flattened more rapidly and there was no interruption of that

trend on Thursday. The German 2-10Y spread declined another 1.5bp to 115.5bp.

However, MNI identified swap trades have largely been 2-5Y flatteners and 5-30Y

steepeners.

- Thursday's auctions were mixed with the Spanish auction going poorly. Even

before the auction results were printed, the dealers were pushing Bund-Bonos and

Bund-BTP spreads wider. However, the French nominal auction came as a relief and

saw decent bidding. 

- It took a strong Gilt auction to send the Bund contract starkly higher. The

rally took the Bund contract to 158.00 at which point volumes leapt higher as

stops were triggered in turn taking the contract another few ticks higher. The

final auction of the day was the French linker where cover ratios were again

quite solid.

- The afternoon saw EGBs trading sideways. A domestic buyer of BTPs was seen and

Bund-BTP tightened but Italian paper remains extremely difficult to predict.