ASIA/US/EUROPE BD/STK RECAP: TSYS OPEN WEAK THEN FX-TIED BID

     US TSYS SUMMARY: US Treasuries opened Wed NY mildly lower, flatter after

overnight mixed flows heading into 11:30am ET $24B 3Y auction and 1pm $20B 10Y

reopening. Traders eyed 2pm ET FOMC meeting minutes for policy signals. Tsys

then by 9:12am ET gained in the long end, amid black-box buying in 10Y futures

amid weaker US$ vs. Japanese yen.

- TOKYO: Tsys ebbed Wed after late Tues NY ebb followed mainly higher NY Tues

action. NY. Tsy 10Y futures and cash 2Y notes saw selling amid pre-auction

setups, while 10Y selling occurred but also foreign central bank buying in 10Ys.

US swaps had extensive paying in 2021-2014 maturities. Asian stocks ended mixed

but Japan's Nikkei stock index ended up 0.3% amid hitting a 20-year high. 

- N.Korea reportedly may launch some missiles next week around time of China

Communist Party major meeting. The initial rise in Tsys yield was linked to

Catalonian news but a B-1 bomber sortie in the area of the Korean peninsular

aided some Treasuries gains. 

- LONDON: Tsys again saw pre-3-year and 10-year note sales and real money sales

in 2Y, 30Ys. But foreign central banks and asset mgrs bought long end Tsys; real

money bought 10Ys. 

- US SWAPS: Tighter; 10/12/15Y butterfly done (see 7:55am ET bullet) 

- US EURODLR FUTURES: Strip trades mixed. Chi Fed Evans: US econ fundamentals

very strong. 

- OVERNIGHT REPO: Tsy 3Y remains very tight; 2Y, 5Y, 10Ys tight.

EGB SUMMARY: The German 10-year Bund yield is slightly higher by +1.8bp on the

day and the Dec17 Bund contract is hovering above the technical support level

situated at 161.13 which is the Oct 10th low. 

- The Catalan President Carles Puigdemont gave a suspended declaration of

independence Tuesday. Spanish yields were lower across the curve today with the

Spanish curve flattening. The 10-year Bund-Bonos spread is tighter by 4.6bp from

yesterday's close. 

- The Spanish PM Mariano Rajoy gave a brief press conference where he said he

will formally ask the Catalan government whether they had declared independence

or not. This had a muted reaction in the markets with only a slight rise in the

10-year Bund-Bonos spread. 

- EGB Option flows were mainly probing the upside and taking advantage of very

contained implied volatility levels. 

- In a good auction Germany sold E3bln Obls. Portugal saw fairly average demand

at their 5Y and 10Y auctions. There is no conclusion to the E5-7bln 7Y auction

at the time of writing.

     GILTS: UK Gilts trading lower, curve bear steepening, as geo-political

risks from Catalonia subside, for now anyway, and UK Chancellor Hammond confirms

that if there is no progress to future trade talks with the EU by the New Year,

then some contingency spending will be needed. 

- Speaking to the Treasury Select Committee, Hammond also said that the

uncertainty over Brexit negotiations is having a negative impact on the UK

economy and have to be prepared for a "no-deal" scenario. Hammond also added

that the UK has a "fundamental productivity problem" and is looking at ways to

address this. 

- 10-yr Gilt yield is 1.376% up 1.4 bps on day.

- There has been some small buying of bullish option trades (calls, call spreads

& calls fly), however short sterling market remains subdued. 

- UK swap spreads are little changed with the exception of the 2-yr which is

1.7bp tighter. While breakevens are modestly wider.

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

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