The market is clearly focussed upon.....>

EGB SUMMARY: The market is clearly focussed upon the geo-politics today but

concrete news has been limited so bonds have weakened slightly as the risk-off

trade makes a very small reversal.

- There was one moment of drama as a rumour quickly circulated that North Korea

had conducted another nuclear test. However, it was quickly realised that the

report was a rehash from Sunday. The spike higher in the Bund was reversed to

far lower than where it sat before the rumour.

- Early option flow in Bunds mostly involved structures that explored the

downside of the market yet swap flows were mostly receiving early in the morning

but a few front end payers have turned up in the past half an hour.

- The German 5Y Obl auction went rather well with a decent amount of bidding and

much better than the technically uncovered auction seen last month. The impact

upon prices was limited.

- Eurozone economic data was second tier. German factory orders fell in July,

compared to an expected rise. Italian Jul retail sales were slightly softer than

expected.