ASIA/US/EUROPE BD/STK RECAP: TSYS WEAK; OUTPERFORM BUNDS,GILTS

     US TSYS SUMMARY: Treasuries open Tues NY weaker after overnight 2way flow

and drift lower since 2:20am ET, as shorts set into 1pm ET $12B 30Y reopening.

Treasuries outperform core EGBS. FOMC begins 2day meeting widely expected to

result in 25bp rate hike. Alabama has special sENATE election for Senate. 

- TOKYO: Tsys began weaker and gradually crept higher in price. Asian central

bank buying in 5Y and 7Y notes aided the market, while other mild buying

occurred in long end. Asian stocks however traded weak, with China's Shanghai

stock index off the most, down 1.3% while Japan's Nikkei ended off 0.3%. 

- LONDON: Tsys peaked at 2:20am ET then drifted lower in muted action, with core

EGBs softer due to firmer UK inflation data. Banks did some 30Y buying, with

other long end buying too. End-users bought intermediates, while bank selling in

7Y notes. NYMEX crude oil rose 0.81% to $58.46 amid a pipeline leak. 

- OVERNIGHT REPO: Tsy 10Y, 3Y, 30Y bonds tight. 

- US SWAPS: Steady, mildly wider in intermediates. 

- US HIGH-GRADE CORPORATE BONDS: Most likely, only scant issuance expected

Tuesday.

GILT SUMMARY: Gilts have been under pressure since the get-go Tuesday and are

trading close to intra-day lows, weighed by surprise tick higher in UK inflation

and reduction in UK political uncertainty, with the 10-yr part of the yield

Curve underperforming.

- 10-yr Gilt yield is +2.1 bps at 1.221.

- Mar Gilt future actually opened a couple of ticks higher compared to Monday's

close with 10-yr Gilt yield touching low of 1.201%. The future very quickly

dropped lower however, likely weighed by perceptions UK government and PM May

for that matter looking slightly more stable than a few months ago. A YouGov

poll for The Times showed the Conservatives having a 1% lead over Labour, the

first since the election as PM May's Brexit deal improved her popularity among

voters. 

- UK headline inflation rose to 3.1% in Nov, above consensus for a steady 3.0%

print and means BoE Governor Carney has to write a letter to the Chancellor. 

- As expected 10Y & 30Y breakevens are 1.2bp wider, while swap spreads tighter

EGB SUMMARY: EGBs have been pulled lower by an unexpected source, an explosion

at the Baumgarten gas hub in Austria, which threatens gas supplies throughout

many parts of Europe.

- As news of the blast filtered through, the future impact upon CPI and the

economies weighed upon European government paper, dragging Bunds to the lows of

the day. 

- However, it was the BTP contract that exhibited the sharpest correction and

the Italian government has subsequently declared a state of emergency. Italian

wholesale day-ahead gas prices surged 87%. 

- The Bund-BTP spread had been 2bp tighter before the news but gave that back in

the aftermath of the news. 

- The German ZEW for Dec was close to expectations at 89.3 for current

conditions and 17.4 for expectations. 

- The German 2Y Schatz auction was small and easily sold at around 1 cent

premium to the market. 

- The Greek 10Y spread to Germany is a decent 10bp tighter at 413bp.

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

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