City spread jokes about Pep's termination (6)
I believe the answer is:
skopje
'city' is the definition.
(Skopje is the capital of Macedonia)
'spread jokes about pep's termination' is the wordplay.
'spread' is an anagram indicator.
'about' is an insertion indicator.
'termination' indicates one should take the final letters.
The final letter of 'pep' is 'p'.
'jokes' with letters rearranged gives 'skoje'.
'skoje' placed around 'p' is 'SKOPJE'.
(Other definitions for skopje that I've seen before include "foreign capital" , "Capital of FYR Macedonia" , "Macedonia's capital" , "capital city" , "somewhere in Balkans" .)