The belly of the EGB curve has been.....>

EGB SUMMARY: The belly of the EGB curve has been under tremendous pressure,

sitting on the wrong side of 5-30Y flattener trades. The scale of the 5-30Y

swing is extremely impressive with a 3.3bp RISE in the 5Y Obl yield but 4.4bp

decline in the Bund 30Y.

- The ECB Board member Benoit Coeure spoke in Davos and was quite hawkish saying

that the ECB will have to focus more on the upside risks going forward and that

"forward guidance will have to evolve, we are in talks". This represented a

door-opening to the destruction of the belly of EGB curves.

- The 10Y yield is also moving higher in a rather strange trading environment

and sits 0.6bp higher than the Thursday close at 0.618%.

- Increasingly difficult to predict Italian politics are keeping pressure on the

Italian market. Auctions of CTZs and BTPeis were not exceptionally remarkable or

even included much in the way of effective duration and should not be weighing

on the marker. Spanish debt is well bid in the 30Y sector as it will (alongside

Germany and Netherlands) see large month-end index extensions.