The EGB market was a one-way street.....>

EGB SUMMARY: The EGB market was a one-way street until the mid European

afternoon. The 10Y Bund yield rose from 0.43% to 0.48% before buyers arrived.

- The selling was mainly in the cash market, more than futures, for a change. We

also noted that the swap flow was mostly on the receiver side, particularly in

the 5Y early on in the session.

- There was no clear catalyst for the selling but contacts spoke of a

re-appraisal of the dovish taper. There was a push to include the prospect that

the ECB might create more hawkish conditions and this needed, higher yield,

cheaper German debt to swaps (a 1.5bp movement) and short-dated, short-maturity

swaption volatility was well-bid.

- However, peripheral debt kept up its very strong outperformance, although this

was truer of Spanish than Italian paper. The Bund-Bonos 10Y dipped 2.5bp to

183bp, its narrowest spread this month.

- Heading into the European close, the 10Y Bund yield is 4bp higher at 0.473%

with the 2-10Y spread at a 2 month high of 118bp.