The belly of the German curve is........>

EGB SUMMARY: The belly of the German curve is under some pressure this morning

despite a decent start to the session on the back of geo-politics.

- Soon after the European markets got underway, European bonds were hit by very

firm French, Germany and then Eurozone PMI data. Within the releases, there was

also a decent pick up in inflationary pressures. 

- Core yields came under pressure but there was a flurry of buying around

1100BST that was futures led. The market is looking at the German election at

the weekend and the attention is mostly upon whether the Liberals enter the

coalition or not but few expect large movements in the Bund contract as a direct

consequence of the vote.

- Peripheral debt markets are mixed as Portugal surrenders some of its weekly

outperformance but the 10Y Italian and Spanish spreads are close to 1bp tighter

to Germany today. 

- The 10Y German yield is flat on the day at 0.455% but the underperformance of

the 5Y has taken the 2-5-10Y German fly to its highest level for a month.