The strong correlation between USTs.....>

EGB SUMMARY: The strong correlation between USTs and equity markets has almost

disappeared over the past 24 hours and so even though the Dow Jones lost another

1000+ points, EGBs hardly moved higher at all.

- One interesting story is the very poor performance by Greek debt and the

already-sizeable losses for those that purchased the 7Y that was launched

yesterday. The 10Y GGB yield is 21bp higher today and its weakness has started

to seep into other periphery markets. 

- There are auctions in Italy early next week, people are quite long and there

is equity volatility. Such factors make a swoon lower in BTPs easier to

comprehend. Earlier, there were a couple of decent sized (for that market) put

options bought on the BTP future. This appeared to mark the start of the

correction lower.

- Data have included a very strong 1.6%M/M rise in Italian IP for Dec and a

decent 0.5%M/M rise in the equivalent data in France.

- European stocks are 0.25-0.50% lower. German yield curve is almost unchanged.

- Bond Futures market volumes have been running below the 10 day average