The risk-on tone to begin Thursday......>

EGB SUMMARY: The risk-on tone to begin Thursday has faded, with Bunds regaining

ground after early losses and the shine coming off the Italy relief rally.

- A new wrinkle in the formation of the new Italian government as Forza Italia

head Berlusconi says his party will oppose the new coalition in the necessary

confidence vote expected next week. Probably not a game-changer and market

impact not entirely clear, with BTPs rallying briefly in response but have since

fallen back - 10Y yield last down 4.9bps on the day to 2.3519%.

- 10Y BTP/Bunds spread went as low as 178.6bps but has since widened to

183.8bps. 10Y Bund yield up 0.9bps to 0.516%, after hitting a low of 0.503%.

- Italy underperforming vs Bunds among the peripheries (5.2bps tighter), Spain

10s in 6.1bps and Portugal 6.8bps. Bonos nearly 50bps further inside BTPs since

the start of May, spread now 96bps in Spain`s favour, a 6.5-year best.

- Fairly limited movement on the Euribor strip with a bit of steepening at the

long end, with Blue contracts down 1-1.5 ticks and Whites up half a tick.

- Little incoming on the calendar today, with major highlights being US-based:

jobless claims, Kansas City Fed manufacturing, and Fed speakers.