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The day started on a bearish footing....>

EGB SUMMARY: The day started on a bearish footing for the debt markets. The
initial impetus was a very weak UST market that had wakened up to the horrible
reality that the Treasury was to issue a mammoth $258bln. The other factor
dragging down EGBs was the prospect of a new 2018 Spanish syndicated deal.
- As it turned out, the Spanish deal encountered an enormous demand. The order
book reached E25.8bln and this demand lessened the pressure on all debt. Spain
ultimately priced E6bln of the deal.
- The 2Y Schatz auction was no so successful in the morning, with the new bond's
auction being technically uncovered.
- During the afternoon, EGBs put in a very strong showing and German 10Y debt
outperformed semi-core and peripheral markets. MNI Pi (positioning indicator)
has identified a sizeable fast money short in Schatz, Bobl and Bunds and with
the roll approaching this may be the catalyst for German outperformance.
- The EGB curve steepened on Tuesday, although only marginally. The 10Y Bund
yield was down 0.6bp at 0.729% and Bund-BTP/PGB/Bonos 10Y spreads each widened
by around 2.5bp. 

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