ASIA/US/EUROPE BOND & STK RECAP:TSYS SLIDE ON US CPI,BOE/GILTS

     US TSYS SUMMARY: UPDATE: Treasuries declined on 0.4% Aug. CPI and 0.2% core

CPI; 10Y yield his 2.222% by 8:32am ET.

     US TSYS SUMMARY: Treasuries slid in early NY, extending overnight weakness

as UK BOE had unchanged mon pol but majority saw near-term hike expected. Next

up is US August CPI: MNI survey had 0.3% median estimate and 0.2% core CPI

median. 

- TOKYO: Tsys paid little notice to further N.Korea saber-rattling (N.K. said

would "sink" Japan, reduce US to "ashes". But mkt did notic China slowing

expansion indicated by retail sales, investment spending and industrial

production. Japan's Nikkei stock index and China's Shanghai, HKG's Hang Seng

index all ended lower. Tsys had better bid and light deal-tied hedging. 

- LONDON: German Bunds drew dip buying, while Tsys bought too as cash 10-year

note earlier neared 2.20%; 10Y is now back there at 2.209% after early NY slide

on UK factors. Early selling in Tsys 2y, 10Y while bank portfolio selling

occurred in belly. Gilts initially spiked on unchanged BOE pol, but then slid as

mkts digested hawkish MPC mins.Tsys hit new session lows thus. Tsy 10Y futures

saw big block sale of 11,833 at 126-13. 

- OVERNIGHT REPO: Tsy 3Y, 7Y, 10Y tight esp. 10Y; 5Y loosens. 

- US SWAPS: Mildly wider. 

- US EURODLR FUTRS: Mildly lower; early buy 10K Mar'18/Jun'18, 0.060%.

GILTS: Dec Gilt future initially spiked 45 ticks in knee-jerk reaction to BoE

voting 7-2 to keep rates unchanged, but very quickly reversed gains and spiked

to session low (a swing of 99 ticks) as markets digested the hawkish MPC

minutes. Dec Gilt last 42 ticks lower at 125.67.

- UK DATA: BOE MPC Vote 7-2 To Keep Bank Rate Unchanged -BOE: McCafferty,

Saunders Vote for 25bp Rate Hike As In Aug Meeting -BOE: MPC Vote 8-0 To Keep

Corporate Bond, Gilt Stocks Unchanged -BOE Majority: Some Tightening Appropriate

Over Coming Months -BOE: Policy May Need To Be Tightened More Than Assumed By

Yield Curve 

- Gilts before BOE news uietly and steadily reversed earlier opening lower move,

underpinned by possible unwinding of some hawkish risk to Bank of England

monetary policy decision and MPC minutes.  30-yr -0.8bp at 1.796% according to

Tradeweb. 

- Gilts opened lower, with yield seen 1.3bp higher a ross the curve, seen

weighed ahead of Bank of England monetary policy decision and release of MPC

minutes, with markets increasingly pricing in a hawkish meeting and risk of a

6-3 vote for unchanged rates. 

- There also appeared to be a 2-/10-year swap steepener trade go through in at

least 100k DV01 - However Gilts recovered from session low as the markets

appeared to be slowly unwinding this risk ahead of BoE decision at 1100GMT. -

There was some decent early flow in front-end of the short sterling strip with

buying in Sep7 offset by selling

EGB SUMMARY: Bunds declined with UK Gilts on BOE factors. Bunds earlier dragged

themselves up off the floor as EGBs overcome supply and no doubt some of

tomorrow's massive redemptions are beginning to get reinvested. 

- One ongoing theme is Catalan independence, which has led to quite considerable

underperformance of Spanish debt in recent weeks and is featuring again this

morning. The 10-Year Spanish spread to Germany is 3bp wider and its

underperformance has also begun to pull the BTP market lower. 

- The German 10Y yield is lower by around 0.3bp but the better demand is in the

5Y section of the curve. 

- Interest in linker markets has increased and spreads between European and

French breakeven curves is moving after newspaper leaks on Tuesday picked up

that the French Livret A rate might remain stable for 2 years. 

- Ireland successfully sold debt and the conclusion of the auction prompted an

instant 0.75bp contraction in the 10Y Bund-Irish spread. 

- Looking ahead, policy makers and Eurogroup politicians are gathering in

Estonia for a meeting.

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

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