ASIA/US/EUROPE BOND/STK RECAP:TSYS WEAK W/ GERM.BUNDS,UK GILTS

     US TSYS SUMMARY: US Treasuries open NY weaker after overnight ebb since

about 2am ET. NY Fed Dudley speaks 8:30am ET and Fed Chair Yellen has 10am ET

Econ Outlook to Congress's Joint Econ Comm; mkt alos faces 8:30am ET GDP and

10am ET Oct NAR pending home sales. 

- TOKYO: Tsys opened w/mild safe-haven bid after N Korea missile launch, also

N.Korea bragging on having achieved nuclear capabilities. Pension funds and Jpn

life insurers bought long end, some early selling/profit taking by US accts on

highs in year-end prep. Some did 5s/30s steepeners fading the flattener move

when curve hit +69.5 bps. 

- LONDON: Tsys traded weaker into London hours w/Gilts (pressured by UK/EU

Brexit pact) and Bunds (pressured by firmer regional German CPIs). But dealer

and fast$ buying in 2s and 5s, while credit-tied buying arose in belly; also

light deal-tied flow, FX-acct selling as US$/yen rebounded. 

- US CORPORATE BOND ISSUANCE: AliBaba Grp to do 5.5Y, 10Y, 20Y, 30Y, 40Y bond

sale (estimates earlier had been for $5.0B-$7.0B deal size); Emirates Sembcorp

Water & Power to do $400M 18Y. 

- US SWAPS: Sprds mixed, intermediates marginally tighter, spd curve flatter.

Flow included light deal-tied flow, rate paying in 5s and 10s. 

- US EURODLR FUTURES: Steady to marginally weaker across the strip. 3M LIBOR

sets +0.0018 to 1.4806% (+0.0130/wk). 

- OVERNIGHT REPO: Tsy 5Y still tight at -1.85%; 2Y, 3Y, 7Y, 10Y, 30Y also tight

too.

EGB SUMMARY: It has mostly been a Brexit trade today in Europe with hopes of a

deal and soft Brexit mitigating fears of the shock to growth when Brexit occurs.

The 10Y Bund yield rose from 0.339% yesterday to 0.372% before investors were

brave enough to buy. 

- German State CPIs were firmer-than-expected and the reliable indicator of

Eurozone growth, the economic sentiment indicator hit 16-year highs. 

- For a change, markets have been cash- rather than futures-led and the 10Y

German benchmark appears to be leading the underperformance in micro-RV terms. 

- More recently, Barnier has downplayed hopes of a quick deal and this has aided

a dip to 0.357% for 10Y Germany. 

- Peripheral debt has outperformed significantly on Wednesday, with BTP and PGB

10Y paper around 3.5bp narrower to Germany. Spanish paper is lagging this move

slightly. Expect a lot of volatility from Portugal leading into the Fitch rating

decision on Dec 15. 

- Italy successfully sold a combined 3.5bln of 10Y BTPs and CCTeu but given the

small auction size, it was not really a test.

GILT SUMMARY: Gilts are trading sharply lower with majority of the move

happening at the start of Wed's session and have pretty much traded sideways

since. Reports that the UK and EU have agreed the Brexit divorce bill (no

concrete numbers) which could led to talks moving onto transition/trade deal in

the new year was the main reason for the sell-off in Gilts with the 5-yr to

10-yr part of the yield curve weighed the most 

- 10-yr Gilt yield is +9.0 bps at 1.342%. 

- The 'increased' Brexit bill offer, agreed by UK cabinet last week is

understood to be good enough to unlock stalled talks ahead of key EU council

summit meeting in 2-weeks time, with newswires quoting Michel Barnier saying

they "hope to have a deal at Dec summit". However there are still concerns over

the Irish boarder and the role of the ECJ on EU citizen rights. Progress on US

tax bill and upside surprise to flash German state CPI also weighed on Gilts. 

- There was large selling in the front-end of Sstg strip at the open, while 10Y

swap spreads are 4.5bp tighter and 5-yr breakevens 3.2bp lower

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

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