Societé Generale - "There is, as ever, a super correlation between peripheral European bond spreads and the Euro. Picture in the FX update attached of BTP/Bund for a laugh. The 10yr BTP/Bund spread is at its widest since December, and the Euro at its weakest level since the start of January. Has the bond spread over-reacted, or are we at the start of a longer widening trend? The Euro's low at USD 1.2060- was reached when the yield spread spiked to 530bp. At the moment, I'm inclined to guess (and I mean guess, there is no science to this) that the spread will move out to around 4% rather than 6%, and that's consistent with EUR/USD in a 1.25-1.30 range. 1.25 is where rates and spread-based model puts fair value today. In the meantime, Italy's political vacuum isn't going away, and tomorrow's BTP auction is the next hurdle."