ASIA/US/EUROPE BD/STK RECAP: TSYS OPEN WEAK; O/NIGHT 2WAY FLOW

     US TSYS SUMMARY: US Treasuries open NY weaker after mild risk-on mood,

overnight 2way flow, firmer US stock index futures and stronger European stocks

indexes. 

- TOKYO: Tsys receded as US stocks Mon in NY eked out small gain. Foreign

central bank selling arose in 5Y, 10Y notes; could potentially be setup for next

wk's 2/5/7Y Tsy auctions. Asian buying occurred in US 10Y notes. US, S.Korea are

in remaining 9 days of military drills; spurred saber-rattling from N.Korea of

"merciless revenge." US Pres. Trump to add troops in Afghanistan, urged Pakistan

to root out terror element. 

- LONDON: Tsys mainly ignored rebound in German Bunds and UK Gilts. Credit-tied

sales, maybe a hedge into new issuance; also curve steepeners. Bank portfolios

sold 5Y,10Y notes, with light FX-tied sales as US$ firmed vs. Jpn yen. Sep/Dec

futures volume picks up. - US SWAPS: Bank rate paying in 5s done overnight. 

- EURODLR FUTRS: Mildly lower; recent buy of 8,000 Red Mar'19/Green Mar'20,

0.185. Apparent sale of 3Y Bundle at 7:50am ET, a block trade. 

- O/N REPO: Tsy 2Y, 5Y notes tight; also 10Y too. 

- HIGH-GRADE US$ CORP ISSUANCE: SEK, Wld Bnk Tues; Wed DBJ 5Y, 10Y

GILT SUMMARY: UK Gilts opened lower, but have spent the remainder of the morning

session reversing though losses as UK government borrowing comes in lower than

expected. A large 15-year swap receiver also seam to have supported recovery in

Gilts. 

- UK 10-yr Gilt yield is +2.0 bps at 1.088%.

- Gilts have opened modestly lower with the long-end seen taking the brunt of

the selling and therefore steepening the yield curve, as market traded with a

mild risk-on tone. The move is despite growing concerns over the Brexit talks

and perceived lack of progress being made on the three main core issues that the

European Union insist on resolving before moving onto any form of trade talks.

The UK Brexit department is expected to release another position paper later

today though 

- Gilts turned around following a large 15Y swap trade that appeared to be a

receiver, and then following a surprise Stg0.2bln surplus in July borrowing vs

expectations of a Stg0.3bln deficit.

EGB SUMMARY: The Bund market weakened from the opening of European trade but its

was an orderly decline, initially pushed lower by some paying of 20Y and 30Y

swaps. 

- However, around mid-morning the bottom fell out of the BTP market. We heard

that there was a large screen seller of the 5Y benchmark, the Apr-22. Yet others

told us that an FT Alphaville article spoke of the dual currency ideas being

championed by some Italian politicians that MNI has been reporting on for a few

days. 

- A little later a 2266 Italian 10Y BTP futures block trade was seen and

reckoned to be a sale. 

- The 10Y Bund-BTP spread widened 6.5bp this morning to 170bp and its largest

spread in just over a month. 

- German debt has seen some very good buying against swaps this morning, mostly

in the Schatz. 

- Datawise, the ZEW index confounded expectations and rose marginally to 86.7 in

August from 86.4 for the current situation. Expectations declined.

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

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