US Treasuries continued to rally....>

US TSYS SUMMARY: US Treasuries continued to rally in late NY trading, taking the

10Y down to 2.86% as the month-end extensions held swap. Asian markets mostly

flat-lined but there was a spike in EGB bond prices soon after the European

open. This was initially led by a sudden surge of German Schatz buying after

some weak Italian PMI numbers. However, with the market short ahead of French,

Spanish and UK auctions, the rally created a quick short-covering rally that

dragged Treasuries along for the ride.

- The 10Y T-note yield was taken from 2.86% down to 2.83% and the movement was

greatest in the 10Y sector of the curve. The 2-10Y spread is 1.5bp flatter but

swap spreads are little changed.

- Withe the month-end behind it, the market will look forward to a fairly packed

economic data calendar including PPI, PCE (including the important core

deflator), initial jobless claims and ISM manufacturing.