ASIA/US/EUROPE BD/STK RECAP:TSYS GAIN:SAFE-HAVEN:SPAIN/CATALAN

     US TSYS SUMMARY: Treasuries opened NY higher after seeing buying starting

soon after Tsys bottomed around 2:30am ET 10-yr note 99-05+/2.345% yield with

sharpest gains around 3:46am ET; 10-yr now 2.309%. Fed Chr Yellen meets with US

Pres. Trump Thurs, the last of his five finalists to interview for Fed Chr post.

- TOKYO: Tsys began steady/mixed after Wed decline, with rangebound action

developing a late bid. Tsys saw mixed flows; foreign central bank buying short

end, other buying in 5Y notes vs. selling out the curve. Regional banks and

macro funds sold Tsys into strength. 

- LONDON: Safe-haven bid bolsters Tsys as Spain said will invoke Article 155 as

Spain/Catalan rift deepens. Asset allocation occurs from stocks into Tsys. Macro

fund Tsys buying while bk portfolios 2-way in 10Ys. New Zealand First before 2am

ET said would join labor to form coalition govt, which sent NZ$ choppy. Tsy 10Y

futures saw recent block buy,5,000 TYZ at 125-11 at 7:33am ET. Real$ did mixed

flows in 3Y note.

- US SWAPS: Wider; risk off outweighs deal-tied compression. 

- OVERNIGHT REPO: Tsy 2Y, 3Y, old 3Y, old 5Y, old 7Y tight.

EGB SUMMARY: There was a mini moment of alarm Thurs in financial markets this

morning as the HKG's Hang Seng stock index dropped rapidly in the morning and

the move was mixed up with events in Catalonia. 

- The Bund contract leapt higher from 162.04 to peak at 162.56, achieved in the

space of 90 minutes of trading. Within the spike the peripheral markets were

underperforming. Nothing unexpected happened in Spain as the Catalan government

failed to rescind its independence request and the central government

communicated its intention to trigger Art. 155.

- The Spanish and French auctions went through okay. Indeed, the Spanish

auctions had fairly respectable numbers given the political backdrop. 

- However, what turned markets around was that the early and sudden flush lower

in European equity markets in the morning had U-turned. Participants had

expressed concern that today is the 30Y anniversary of Black Friday and so the

equity market is more important than usual for bonds. 

- The 10Y Spanish spread to German has swung around today, starting at 121bp,

peaking at 129bp and currently at 124bp.

GILT SUMMARY: Gilts are trading higher with the 5Y and 10Y part of the yield

curve leading the way supported by risk off flows as equities sold off and

weaker than expected UK Retail Sales. Prices are off session best levels due to

disappointing 10Y Gilt reopening auction. 

- Gilts initially opened unchanged this morning, but squeezed higher due to a

sell off in equities and confusion over the situation in Catalonia in a risk-off

scenario. 

- Weaker than expected retail sales pushed Dec gilt futures to fresh session

highs. Around same time two gilt block trades were seen going through. - Gilts

pared gains though as UK 10Y reopening auction tailed heavily (0.4bp vs 0.2bp),

but remained underpinned by continued Brexit concerns. 

- Swap spreads in the region of 0.5bp wider while breakevens are circa 2bp

tighter.

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

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