There was a slow, but sure grind........>

EGB SUMMARY: There was a slow, but sure grind lower in the prices of EGBs on

Wednesday but the European market was only part of a wider mini-rout in bond

markets. The 10Y Bund yield was 3bp higher going into the close but the Gilt

market saw its 10Y yield 6.5bp higher.

- Part of the move higher in yield could be justified by economic data: strong

Eurozone PMI numbers and good UK unemployment data. However, most of the yield

increases were seen at times away from the data release and was clearly

flow-driven. 

- The dollar attracted considerable attention, weakening aggressively after Tsy

Sec Mnuchin said that the weak dollar helps US exports. However, usually yields

and the dollar (mainly JPYUSD) are positively correlated and so market sources

were scratching their heads as to what the dollar move might mean.

- Supply is a partial explanation for higher bond yields with EFSF, Lower Saxony

and others selling debt. 

- Peripheral debt had a mixed day. BTPs started poorly as a large block trade vs

OATs was seen early but BTPs came back to flat vs Bund. Spain is 2bp tighter.