There is a bearish bias to core and.....>

EGB SUMMARY: There is a bearish bias to core and semi-core bonds at present and

money continues to flow towards the periphery.

- The 10Y German yield has had a volatile morning but yields are +2.4bp on net

today. Some of that weakness can be attributed to setting up for this morning's

Spanish and French supply. However, while the Spanish auction could be described

as okay, the French long-dated auction was definitely poor. Hopes that life

insurers would show up looked misplaced. Redistribution trades were quickly seen

after the result, MNI noted E200mln of the 10Y and E100mln of the OAT 2034.

- There have been a number of Markit manufacturing PMI releases. The Eurozone

PMI was unchanged from the flash estimate but Italian and Greek (best since

2008) PMI's were extremely robust.

- Peripheral spreads are outperforming and questions will soon be asked whether

Spain should be considered 'peripheral' as the 10Y spread is down 2.8bp at 70bp,

the lowest since Q1 2010. Italy is performing slightly better today particularly

in the 30Y.