ASIA/US/EUROPE BOND & STOCK RECAP: TSYS FIRMER THEN EBB LOWER

     US TSYS SUMMARY: US Treasuries open Mon NY higher but well off 2am ET

session high prices, after Asian gains and some mild flattening: Tsys most

recently declined led by German Bunds. Gold traded mildly weaker while crude oil

off 0.53% on the day. US stocks index futures traded narrowly mixed, while

European indexes higher. 

- TOKYO: Tsys saw early bid, chopping higher and holding narrow range near highs

ahead London open. Pension and Japanese insurance portfolio buying in long end,

credit-tied short covering. 

- LONDON: Euro currency volatility as talks on forming German coalition

government collapse. Tsys followed Bund lead higher, then ebbed amid thin

pre-holiday volume. Macro sales in 5Y notes, fast money sold 10Y. Bunds spike at

8:09am ET into German President announcement going on now. 

- US SWAPS: Steady/mildly wider, overnight 2way short end flows, receiving 5Y,

30Y. 

- EURODLR FUTURES: Steady/mildly higher, brisk selling in EDZ8. 

- OVERNIGHT REPO: Tsy 5Y, 10Y notes tighten more. 

- US HIGH-GRADE CORPORATES: Mon has Reliance Industries 10Y and Macquarie Group

6Y/NC5Y, 6Y/NC5 FRN and 11Y/NC10Y.

EGB SUMMARY: Good volatility early on then calm before German 10Y Bund contract

spiked higher to recent high around 163.06 at 8:19am ET; now it is at 162.94;

earlier Bund contract opened firmly on the back of the breakdown in coalition

talks but these gains evaporated and the opening gap closed within an hour. 

- After the initial fireworks, the EGB market settled and there have been very

few notable trades; certainly nothing in the futures or EUR swaps markets.

German President Steinmeier said he will hold talks with some parties on a

coalition, according to Bloomberg. There are conflicting reports across the

market as to whether a German minority government is do-able. 

- Peripheral markets are fairly stable today with the exception of some small,

additional cheapening in the Greek market. The Bund-BTP 10Y spread was 0.7bp

tighter at 146.8bp earlier. 

- Slovakia successfully auctioned 8Y and 20Y paper, with the 20Y seeing a very

high cover. This sector of the curve has cheapened significantly to other EGB

20Y sectors. 

- The only data release of note was September German PPI, which hit the

consensus estimate exactly.

GILT SUMMARY: The 10Y UK Dec17 Gilt futures contract headed lower after a

positive open. The move lower appears to be on the back of reports that PM May

is willing to increase her divorce bill offer to the EU and that cabinet

ministers have indicated that they are willing to accept the new conditions.

This report appears to have pushed Cable higher and in turn pushed Gilt futures

lower. 

- Gilt futures pared much of losses as the morning progressed and markets seem

to be trading on thin volume, which could provide some explanation for the

choppy trading. - The 2Y-5Y part of the yield curve has underperformed compared

to the 10Y-30Y part. 

- UK 10Y yield +1.0 bps at 1.303% at 9:15am ET. 

- UK swap spreads earlier traded slightly tighter with the 2Y trading 0.2

tighter, while breakevens are wider with 5Y trading 1bp wider.

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

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