The EGB market started weak but spun....>

EGB SUMMARY: The EGB market started weak but spun around quickly once the

Eurozone HICP data were released.

- The reaction was quite brutal given that the expectations miss was tiny if the

unrounded headline or core numbers were looked at. The Bund contract rose from

162.30 up to 162.75 as the core HICP number stayed at rounded 0.9%Y/Y.

- Despite the miss in the inflation rate, EGB breakevens were well bid in the

morning as reports surfaced that OPEC was close to an agreement on an output cut

extension. 5Y French breakeven rose 2bp but also the 5Y5Y forward swap breakeven

is higher and almost at its highest for 8 months.

- Massive front month euribor selling was seen on Thursday perhaps in response

to a very strange spike higher in eonia, which nobody could adequately explain.

- Peripheral markets were strong and towards the close, month-end activity

developed and caused the Bund-BTP spread to quickly sprint tighter. Going into

the close, the spread was 138.4bp and around 2bp tighter on the day.

- The German curve flattened, with the 2Y unchanged at -0.687% and the 10Y down

1.7bp at 0.368%.