Volatility is well and truly back in....>

EGB SUMMARY: Volatility is well and truly back in EGBs and rates, with a global

flight to safety boosting Bunds, and Italy concerns widening periphery spreads.

- Italian spreads have come back from 2-month highs set this morning but remain

elevated, as markets await the outcome of a budget meeting between the two

Deputy PMs and Fin Min Tria. The 2-Yr segment has been hit hardest, with the

yield rising 40bps at one point, but last up 13bps at 1.11%.

- 2-Yr spreads over Bunds are out 15.1bps at 169bps, 28bps down from the high.

- Other peripheries have fared better: Spanish and Portuguese spreads are out

only a couple of basis points vs Bund, Greek 10-Yrs are 6.6bps wider at 368bps.

- 10-Yr Bunds have outperformed the overall German curve rally, yields down

3.2bps at 0.428% (2-Yrs down just 1.8bps). Weak EMU services PMIs supportive.

- Dec-18 Euribor has had its biggest move since mid-June, down 1 tick at

100.285, on the second highest daily volume already this morning since the May

Italian political crisis (163k contracts traded). Overall the strip is flatter,

with long-dated Blue contracts down 2.5-3.0 ticks.

- Apart from Italy, markets eying US nonfarm payrolls at 0830EST/1230GMT.