Switching context between two instances from one account
The list applications command requires an instance attachment, which is performed implicitly when you first run this command against "instance1". The CLP back-end process db2bp, which handles all server commands and SQL statements on behalf of the front-end program CLP db2, remains attached to the "old" instance after you switch the environment. 

You need to end the back-end process by issuing the terminate command (db2 terminate), which will cause a new back-end process to spawn and attach to the new default instance, as specified by $DB2INSTANCE, next time it is required.