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EGB SUMMARY: Tuesday's relief rally has given way to an increasingly panicked
sell-off Wednesday, highlighted by Italian 10Y BTP spreads over Bunds widening
at one point by nearly 19bps to a fresh high of 195.8bps. The spread is now up
85bps from the 25 April low, and the 52-week high of 203.5bps is in sight.
- Sentiment has deteriorated due to multiple factors, including the continuing
saga over the appointment of a new Italian Prime Minister and potential
eurosceptics in line for Finance; hawkish US President Trump comments Tuesday on
China and North Korea; and emerging markets` continuing meltdown (esp Turkey).
- Bund and French OATs have flown, helped by the above safe-haven factors but
also weak Eurozone flash PMI data this morning. Jun18 Bunds up 78 ticks to
159.68, while OATs up 46 ticks to 153.73. Poor Schatz auction today, technically
uncovered (0.78 real bid-to-cover ratio), in wake of big yield drop.
- Peripheries outperforming Italy but still look ugly. Portugal PGBs out 8.9bps
vs Bunds at 149.0bps, Spain doing relatively better our 5.6bps at 95.3bps.
- The Euribor futures strip has slightly lagged the global rates rally but is
still well bid. Decent flattening, with Blues up 4.5-5.0 ticks and Whites flat.

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