The morning session was very heavy......>

EGB SUMMARY: The morning session was very heavy for EGBs as the market began to

build a concession for the 10Y Bunds auction but mostly because there were some

strong UK labour market data that pulled Gilt prices down heavily. Given the

slide in Gilts, EGBs fared extremely well. 

- Heading into the close there is a 1.5bp steepening of the 2-10Y German curve

as the Schatz moved down 0.5bp to -0.59% and the Bund yield rose 1.0bp to

0.595%. 

- There was a good push-back against yesterday's massive tightening in

peripheral spreads to Germany in the afternoon session. The Italian election

outcome is still looking uncertain but the Right-Wing coalition and M5M are

behaving amicably to each other and there is talk of compromises. This is not

necessarily a market-friendly outcome since there is a distinct possibility that

the two populist parties will be in a coalition. Thus far, agreement appears to

be forming on the choice of President in each of the two chambers. 

- The Bund-BTP and Bund-Bonos spreads widened by 2bp on the day to 133.6bp and

74.6bp respectively.