There were a couple of decent drops through....>

EGBS: There were a couple of decent drops through the course of a fairly bearish

day. Some blamed the central bank-fest that occurs this week and the preparation

for that. There was also a decent drop accompanying news of a gas hub explosion

in Austria that may well have material consequences for Italy, in particular.

- The second drop that came later in the afternoon was closely linked to

weakness in a US Treasury market, already battered by strong PPI data. No

specific catalyst lay behind the move but some speculated that dealers were

building in a concession for the 30Y Bond auction that comes later. Being

December, it is not unusual for markets to move without much external influence.

- The 10Y Bund yield went into the close 2.2bp higher on the day at 0.316%.

However, a decent 2Y Schatz auction helped to protect the front end of the yield

curve from much net movement. 

- Greek bonds were very strong as the 10Y yield fell by 12bp and the spread to

Germany tightened to yet another 7Y low. Yet, Italian, Spanish and Portuguese

bonds each saw their 10Y spreads to Germany widen by around 2-3bp on the day.

- The German