ASIA/US/EUROPE BD/STK RECAP:TSYS GAIN:10Y FUTR BID,FX-TIED BID

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     US TSYS SUMMARY UPDATE: Treasuries rallied in early NY Thurs amid German

Bund improvement, heavy buying in Tsy futures (two large block trades before

8:30am ET) and later FX-tied buying by black boxes as US Pres. Trump further

sanctions vs. N.Korea spur weaker US$/stronger Japanese yen.

US TSYS SUMMARY: Treasuries prices open NY Thurs higher, flatter after overnight

range trade followed Wed FOMC unchanged policy & anncmt on Oct start of Fed

balance sheet rundown. 

- TOKYO: Tsys saw quiet start, range amid buying by Japanese accts in 5Ys, Jpn

bks in 10Ys, Jpn insurance portfolios in 30Ys. Jpn asset mgrs and Asian central

banks bought 2Y, 3Y, 5Y, 7Y notes. Some brief selling arose as US$ gained, but

fast money bought dip. S&P Ratings cut China sovereign rating one step to A+,

stable outlook. - LONDON: Tsys drift lower within range as EGBs pressured by

heavy Spain, France govt debt issuance. Bank portfl buying arose in US 2Ys,

while TIPS saw mixed flows, and two-way trade in nominal 5Y, 10Ys. Bank sales in

5Ys. 

- US SWAPS: Mildly wider for most part, spread curve steeper, some buying of

corporate bonds on asset swap spread basis. 

- US EURODLRS: steady short end, mildly lower out strip. 

- OVERNIGHT REPO: Tsy 2Y, 5Y, 7Y, 10Y notes all tight; T-bills cool off. 

- US HIGH-GRADE CORPORATE BONDS: Newcastle Coal eyed 10Y benchmark note.

GILT SUMMARY: Gilts opened sharply lower and have pretty much stayed there since

with the Dec Gilt future contract trading in a very tight 19 ticks range with

volumes slightly below average, as markets react to FOMC decision last night 

The 10-yr part of the yield curve is seen leading the underperformance with

yield 2.5 bps higher at 1.361% at 9:59am ET.

- There was only a marginally recovery in Gilts when latest UK public sector

borrowing numbers came in below consensus. The UK borrowed Stg5.669bln in

August, below the Stg7.3bln expected and lower than the Stg6.92bln in Aug 2016,

helped by rise in VAT receipts. 

- There has not been much UK news overnight, however attention will be turning

to the cabinets Brexit meeting this morning and is expected to sign off on May's

Florence speech, which has been described as open and generous, however weather

the EU see it that way will be another matter. 

- UK breakevens have widened with 5-/yr & 10-yr around 1.5bp higher, while swap

spreads are mixed with 5-yr and 10-yr around 1bp tighter & 7-yr 2.3bp wider.

EGB SUMMARY: For most of the morning, the Bund contract was left alone to nurse

losses. We heard from several sources that cash bond activity was either 'quiet'

or 'dead'. Bund cash 10Y improved around 8am ET, then some profit-taking, then

rose again around 9:43am ET.

- Earlier action had some small selling in Spain and BTP future also came under

quite significant selling pressure. The BTP 4.75% Sep-28 is the IKZ7 CTD and

also the poorest performing Italian bond this morning. 

- 10-Year Bund-BTP spread has widened about 2.5bp today and far outpaces the 1bp

widening in Spain, which might have been expected to widen more because of the

Catalan issue and the Spanish auctions. One market contact speculated that

perhaps the Bank of Spain might be active in PSPP buying. 

- German cancelled a November Obl auction in its Q4 issuance programme because

of lower funding needs. 

- French and Spanish auctions have gone through without a hitch but the close of

the French linker auctions coincided with a small dip in the Bund that took the

contract down to the low of the day. 

--MNI New York Bureau; tel: +1 212-669-6432; email: sheila.mullan@marketnews.com

[TOPICS: MNUEQ$,M$U$$$,MR$$$$,M$$FI$,MN$FI$]