ASIA/US/EUROPE BD/STK RECAP:TSYS WEAK, STKS CHEER TAX PROGRESS

     US TSYS SUMMARY: Treasuries open NY lower after risk-on-asset buying

reaction to the Senate's passage early Saturday of its tax bill; stocks now bid.

Stocks also bid as ABC News backpedaled from its Friday report, corrected to say

that ABC source said Flynn said Trump allegedly as president-elect (not

candidate, as initially reported) directed Flynn to contact Russians; ABC

suspended reporter Brian Ross for 4 wks for the error. Ross also clarified to

say that Trump asking Flynn to contact Russians was to work on issues such as

fighting ISIS. 

- TOKYO: Tsys gapped lower on the Senate tax bill passage, then saw two-way

trade and dip buying, narrow range. 

- LONDON: Tsys sawa more two-way choppy action, with Tsys off day's low end

since about 2:36am ET when cash 10-year note yield moved lower from 2.412; that

yield then hit a 2.385% session low yield at 4am ET, now is at 2.395%. 

- US SWAPS: Steady/marginally mixed, 5Y tighter; receivers in 2Y, 10y and mixed

flows in others. 

- US HIGH-GRADE CORPORATES: Republic of Indonesia Baa3/BBB- 5Y/10/30Y, and

Westpac Banking 5Y, 5Y FRN. This week was expected to be a busy week of

high-grade issuance, likely the last such busy week before the year-end. 

- OVERNIGHT REPO: Tsys old 5Y, old 2Y notes tighten.

GILT SUMMARY: UK Gilts traded significantly lower led by the short-end, in-turn

bear flattening the yield curve as hopes of a Brexit deal edges closer. UK 10-yr

yield rose 5.7bp to 1.288%.  

- Gilts opened sharply lower weighed by late Friday night approval of US tax

reform plan by the Senate and reports that a Brexit deal is 90% there was also

seen weighing. 

- Markets were then stuck in lower range waiting for updates on Brexit talks,

especially on the Irish border issue which had not yet been agreed. Some of

these concerns crept into the FI markets and Mar Gilt future squeezed to fresh

session high following a block buy of 1.5k contracts at 124.35. 

- Newswire headlines saying that EU's Chief negotiator Michal Barnier had told

"MEPs that a breakthrough is likely today" then sent Gilts crashing lower. 

- PM May is scheduled to meet EU's Juncker and Tusk for lunch in Brussels today,

so all sides are trying to agree on a deal for EU leaders to consider next week.

- Swap spreads are tighter across the board while swap spreads are mixed.

EGB SUMMARY: The reaction to the Senate tax plan passage was strong but, in

fixed income at least, has been faded by investors. The 10Y Bund yield rose by

around 3bp from the start of European trading and initially drifted higher to

0.345% before buyers arrived and brought the yield down to 0.33%. 

- There appears no let up in the strong performance of the periphery with Spain,

Italy, Portugal and Greece all tightening by fairly decent amounts. the Bund-BTP

spread bounced off the 1Y low spread of 137.5bp and is currently sitting at

138.5bp. 

- Michel Barnier has apparently said that a Brexit breakthrough is likely today.

The Schatz and Bund contract both dipped slightly on the news. However, the

market has become somewhat numb to the ebb and flow of "deal is close, not

close, close again" type of headlines. 

- Belgian debt started heavy following a good rally on Friday but the decline by

peripheral spreads is taking that markets' spreads to almost 10Y lows.

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

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