There was a North Korean rush higher....>

EGB SUMMARY: There was a North Korean rush higher in prices in the early

European morning but the risk-on movement ran out of legs at the German Schatz

auction. At the close approached, the 10Y Bund yield was 3.2bp lower at 0.344%

- Considerable attention was upon the euro as it appreciated even further; in

trade-weighted terms it has risen 8.2% since April.

- The auction was poor and technically uncovered. The 10-Year Bund yield quickly

gave back1bp of the 5.5bp that it had declined to that point. However, that was

just the start of proceedings as sellers were ever present through the day.

There were some large payers in the 5Y swap.

- The new Schatz is particularly important because it will become CTD into the

Dec-17 contract. The uncertainty of the valuation of the new security has acted

is seen as a popular roll trade. So aggregate open interest for the Schatz has

exploded in recent weeks.

- EFSF sold E2bln of a 23Y security. In the press release they remarked that

they only have E2bln of issuance remaining this quarter -- although they tend

not to pay close attention to these targets.