ASIA/US/EUROPE BOND & STOCK RECAP:TSYS BEGIN NY WEAK THEN RISE

     US TSYS SUMMARY: Treasuries open NY mildly weaker, flatter after overnight

range trade in holiday week-thinned trading. (However the bond market had

improved by 8:42am ET amid buying.) Tsys may have pressure amid need to get

price concession to help the 11:30am ET US$13B 2Y FRN reopening and the 1pm ET

US$34B 5Y note auction; Tues had a so-so $26B 2Y auction. 

- TOKYO: More drama in Asian stocks than US Treasuries as Shanghai stock index

closed down 1.6%.however Japan's Nikkei stock index +0.01%. Foreign buying arose

in 5Y, 10Y Tsys.

- LONDON: Tsys had slight brief gain in holiday week trading as UK Gilts rose.

WSJ: PIMCO's Richard Clarida, Lawrence Lindsey considered for Fed VC post. Crude

oil weak on profit taking on Tues gain after terrorists hit a Libyan oil

pipeline. Tsys 2/5Y, 2/10Y, 5/30Y all flatten mildly. Nominal Tsys and TIPS

trade roughly comparable. Value jostling in short-dated bills on yearend RP

pressures, debt ceiling issue. 1mo bill rates leapt up to 4bp to 1.225% in Asia,

yet still below 1.53% GCF repo rate. 

- US HIGH-GRADE CORP BOND ISSUANCE: Quiet; Jan: potential Philippines bond, John

Deere maybe etc. 

- OVERNIGHT RP: Tsy 5-year tightens to -0.70% amid pre-auction shorts; 10Y also

tight at 0.36%.

GILT SUMMARY: UK Gilts are trading steady to higher, curve flatter as the

long-end outperforms and the short-end is held back by rise in oil and copper

prices since last Friday, albeit in very light illiquid trade. UK 10-yr 2.8bp at

1.221%. 

- Gilt future actually opened a few ticks lower than Friday's settlement price,

however very quickly reversed losses and squeezed higher. Volume was very low

though with only 10k contracts being traded in first 45 mins of trade. 

- Markets talk of small rise in geo-political risk following new US sanctions on

North Korea. While sharp rise in oil price due to pipeline explosion in Libya

and continued rise in copper raised inflation concerns and possible quicker Fed

rate hikes for 2018. 

- Early indications from UK retail over Christmas showed sharp fall in people

visiting shopping centres and the high street, while a report said that UK's pay

squeeze will end next year but any meaningful pay rise still to be seen. 

- Breakevens are surprisingly steady, while swap spreads are marginally wider.

EGB SUMMARY: There was a strong start for the Bund contract early in the session

and the contract quickly surpassed the high from last Friday. However, the

contract popped its head above the 162.00 level and then began to decline.

Currently, the 10Y Bund is mildly higher, with yield at 0.396%, -1.9 bps on day.

- Peripheral debt is under pressure. The Italian 10Y spread to Germany is 3.5bp

wider at 152.7bp and the weakness of Portuguese and Spanish markets are not far

behind. 

- Italy sold E2.5bln of a 2Y CTZ into fairly reasonable demand, given the time

of the year but this failed to turn the Italian market around, which sees more

significant supply tomorrow. At 0907GMT, there was a 885 BTP futures block that

looked like a sale. 

- Oil price rises have assisted in a decent bid for some short-dated breakevens

in Europe, although the 5Y/5Y inflation swap is nearly unchanged. 

- There has been no economic data of note. 

- Trading is predictably thin.

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

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