ASIA/US/EUROPE BOND/STK RECAP: TSYS BEGIN WEAKER, TRACK GILTS

     US TSYS SUMMARY: US Treasuries open NY weaker, 2/30Y curve mildly steeper

but 5/30Y flatter. Mkt awaits 1) Friday 8:30am ET US Nov. nonfarm payroll

employment report and 2) word on US debt limit (temporary lifting expires

Friday); Congress legislators were to talk debt limit today. Tsy 11am ET unveils

next week's 3/10/30Y auctions. 

- TOKYO: Tsys extended weak open, bottomed out 8pm ET Wed, then range into

London. Mkt saw modest two-way in 2s and 5s, FX-tied selling, 5s30s curve

flatteners, regional bank buying cash 10s and 30s. 

- LONDON: Tsys improved off a range starting 3am ET, then peaked 5am ET, since

remained weaker in line with soft core EGBs (such are pressured by French and

Spanish auctions). Mkt saw carryover 5/30Y curve flatteners, and 2/10Y, 2/30Y

flatteners too. Asian real$ bought short end, 2way in 10s by props, fast- and

real$, better selling by fast$, real$ and central bank selling in long end. 

- US SWAPS: 10Y rate payer earlier, then receiving at 2.36205% 10Y; 2Ys 2-way. 

- OVERNIGHT REPO: Tsy 10Y squeezes much tighter still, now at -3.55%; 3Y, 30Y

and old 5Ys have a much milder bid.

EGB SUMMARY: The German Bund contract opened a few ticks down at the open but

recovered that lost ground fairly rapidly, indeed the morning almost took the

Mar-18 contract to the recent double peak of 163.66/67. 

- The strong performance was mostly cash based and we heard of some 2-10Y

steepener trades. There was also a lot of activity in the 10-30Y sector of the

swap curve, mostly on the pay side. The result was a significant outperformance

of swaps by cash and futures markets. At one point, 10Y German swap spreads had

moved 2bp wider. 

- Auctions from Spain went fairly well but a short period later, the French

auctions were weak, particularly for the OAT 2029 Green bond. EGB markets

weakened around supply but the bigger problem was a very weak 30Y Gilt auction

that prompted a round of stop-losses in EGB contracts. 

- Economic data have included a holiday-impacted German Oct industrial

production report, which showed a 1.4%M/M decline and compared to 0.9%M/M

expected rise. Eurozone second reading Q3 GDP registered a 0.6%Q/Q rise, in line

with the first reading.

GILT SUMMARY: Gilts are trading lower, yield curve steepening after suffering a

sell-off just before 30-yr Gilt re-opening auction and then crashed lower in

reaction to sharp rise in the tail.

- Ten-yr Gilt yield spread is 1.2 bps at 1.240%. 

- Gilts initially opened little changed to lower with no real progress seen in

the Brexit negotiations with chatter that they could be extended to eve of

Summit 

- Gilts then sold off just before 1000GMT and sterling spiked higher, likely on

the back of a BBC News story that UK ministers were 'absolutely optimistic' of a

Brexit border deal. Later on though a Gilt future block of 5,539 contracts was

put through which could of explained the move lower. - Then a sharp rise in the

tail at the 30-yr Gilt re-opening auction led to Gilt futures spiking lower by

another 21 ticks. 

- Breakevens are 1.5bp wider as sterling falls back after initial spike higher,

while swap spreads are little changed except for 2-yr which is 2.9bp tighter.

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

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