ASIA/US/EUROPE BD/STK RECAP: TSYS OFF AFTER O/NIGHT MIXED FLOW

     US TSYS SUMMARY: US Treasuries open NY weaker after overnight range, 5/30Y

flatter while 2/10Y steeper. 

- TOKYO: Tsys saw a tight range, as a firmer US$/yen pressured Tsys, but some

mild month-end limited weakness. Asian stocks ended mixed: Jpn's Nikkei ended

+0.57% while Hang Send ended off 1.5%. 

- LONDON: Tsys boosted off day's lows amid mild month-end bid, as advance

Bloomberg/Barclays US Tsys index estimated to extend 0.11 yrs; should be more

month-end bid through the day. Earlier Tsys weakness occurred as core EGB

pressured temporarily. Better buying surfaced in US 7Y, 10Y notes. Real money

bought intermediates. Recent action had buy of 2,500 TYH at 124-12 at 7:55 a.m.

ET, cross on offer; two blocks of 2,5K TYH8 at 124-11 and at 124-09+,

respectively at 9:54am GMT and 9:21 GMT. Also was sale of 2,000 USH8 at 8:11am

GMT. 

- US SWAPS: Wider, curve flatter, short ends leads move. 5/10Y sprd flatteners

by real money, while 2/5/7Y fly receiving occurs, deal-tied paying too. 

- US EURODLR FUTURES: Weaker, off overnight lows 

- OVERNIGHT REPO: Tsy 3Y, 10Y remain tight; 2Y, 5Y, 7Y loose amid Thurs auction

settlement. 

- US CORPORATES: Adani Abbot Pt Terminal (BBB-/BBB-) on Thurs has 5Y (+245s). US

CDX high-yield and high-grade indexes are both tighter on the day, as is EMG

CDX.

GILT SUMMARY: Once again majority of the move lower happened at start of London

session as optimism on Brexit talks moving onto the nest stage notched higher,

however Gilts did find some support on soft Eurozone CPI. Yield curve is

slightly steeper as ultra long-end underperforms. 

- 10-yr UK Gilt yield is 0.9 bps at 1.344%. 

- The pieces of the first phase of the Brexit negotiations seem to be coming

together ahead of key May/Juncker meeting on Monday which is hoped with give the

EU confidence that sufficient progress has been made so that talks can move onto

a transitional agreement and then quickly onto a trade deal. 

- Gilt real yields have underperformed nominals with the 5-yr seen suffering the

most once again, likely weighed by expectation inflation will faded as Sterling

continues to strengthen against US Dollar and Euro. 5-yr breakevens are 4.2bp

tighter at 2.92% (fresh 3-month low) and adds to the 3.2bp tightening seen

yesterday. 

- Swap spreads are tighter as well, led by 2bp fall in 15yr to 30-yr sector.

EGB SUMMARY: EGBs are pulling back some of the losses seen on Wednesday, mainly

assisted by the weak Eurozone CPI print. Up until that moment, the Bund yield

was actually higher on the day. - The German curve is pivoting: 2Y yield is up

marginally, the 30Y is -1.4bp. 

- The all-important Eurozone core CPI stayed at 0.9%Y/Y in November, dashing

expectations of a tick higher to 1.0%Y/Y. Fred Ducrozet from Pictet Wealth

Management made the point that unrounded, core rose from 0.89% to 0.93% and the

details were encouraging for improvement ahead. 

- The data set off a round of Bund block trades that propelled the contract from

around 162.40 up to the day's high at 162.75. 

- Once again, Italian debt has outperformed and the Bund-BTP spread tightened

nearly 2bp to 139bp and close to the one year low of 137.5bp seen on 7 Nov. The

10Y spread to Spain is back under 30bp. 

- There was a reported buyers of EGB linkers this morning and this is creating

an odd environment in which Gilt breakevens are dropping and EGB breakevens are

rising.

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

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