Risk aversion seen in the morning.......>

EGB SUMMARY: Risk aversion seen in the morning receded in the afternoon, but

periphery EGBs remain weaker on the day, with core bonds a bit stronger.

- Italian volatility picked up significantly amid broader global risk aversion

and apparent concern over Poste Italiane and budget negotiations. BTP curve bear

flattened, 2-Yr yields up 13bps at 0.902% and 10-Yrs up 8.9bps at 2.879%. 

- These represent improvements from midday, when spreads had moved to the widest

levels vs Bunds in a month. 2-Yr BTPs had widened as much as 27bps to Bunds

before pulling back, last out 14.4bps. 10-Yrs are 10.2bps wider at 241.2bps.

- Other peripheries fared better early, but Greece is now lagging, with the

10-Yr wider by 11.9bps to Bunds at 362bps, with a 10.5bps rise in yields at

4.085%. Spain and Portugal are out just 1.0bps and 2.5bps respectively.

- The German curve is flat between 2s-10s, but Bobls have outperformed by a

couple of basis points in line with the global move for belly outperformance,

with the 5-Yr yield down 1.5bps at -0.115%.

- Euribor futures picked up slightly by mid-day and have remained steady since,

Green and Blue contracts up 1.5-2.0 ticks.