ASIA/US/EUROPE BOND/STOCK RECAP:TSYS GAIN WITH UK BUNDS, GILTS

     US TSYS SUMMARY: Treasuries open NY higher, flatter as overnight rally

picked up speed around 4am ET as Tsys tracked EGBS upward after German election

results and FTQ on Mideast jitters. 

- TOKYO: Tsys saw fast$ sellers into strength, early safe haven unwind after

last wk rally; Asian end-user selling in 5s. Japan PM Abe to dissolve lower

house, change tax pol. 

- LONDON: Tsys surged w/Bunds as German PM incumbent Angela Merkel gained 4th

term but far-right AFD party gains enough votes to get Bundestag seats. Tsys and

Gilts rallied too on FTQ bid on Mideast (Turkey, Iraq, Iran) political tension.

Tsys had fast$, real$ buying in 5s and 10s; US bank and real$ buying 30s, end

user selling into rally. Corp, Tsy supply-tied sales. Recall Tsy 10Y note had

100-00 upside pivot pt; had been above there, now slightly below; Tsy 10Y future

had 125-28/32 upside pivot; it hit earlier high of 125-31+ at 5:19am ET. 

- US SWAPS: Spds mildly tighter across curve; bk portfolio 10Y receiving. 

- US CORPS ISSUANCE: Nissan Motor Acceptance 3/FRN and 5Y/FRN Mon. 

- OVERNIGHT REPO: 2Y, 3Y, 5Y, 7Y 10Y Tsy notes tight.

GILT SUMMARY: Gilts have rallied during London morning session, supported by

flight-to-quality bid as political tensions increase in the Middle-East, Japan's

Abe calls for early elections and as markets digest full-out from German

Elections. 

- UK 10Y Gilt was at 1.358%, up 0.4 bps after earlier lower yields.

- Gilts opened little changed, unaffected by the surprise UK rating downgrade on

Friday evening as markets digested the German lection results that should Angel

Merkel winning a fourth consecutive term, but the far-right AFD party gaining

enough votes to get seats in the Bundestag. 

- Sharp spike in Bunds due to split in AfD party though dragged Gilts higher,

while comments from Turkey's PM Yildirim that the Iraqi Kurd's independence vote

was "laying the grounds for hot conflict and confirmation of early elections in

Japan, also led to flight-to-quality bid. 

- Brexit talks resume in Brussels, but expectations are low, despite Mays speech

- UK breakevens are 1.3bp-2.0bp tighter, while swaps spread are little changed

EGB SUMMARY: Bunds took a while for the impact of the German election to filter

through, but when it came it was a big move upward. There was little fresh news

in the morning session but it looked like the market had been short Bunds and

was caught out. 

- All the major spikes in Bund trading volumes occurred at significant technical

levels: the Sep 18 high of 161.42, the hourly resistance of 161.51 and the Sep

15 high of 161.82. The latter level appeared to arrest the rally. The 10Y Bund

was at 161.53 at 9:19 am Et.

- An MNI interview with the ECB's Vasiliauskas said that he was not worried by

the current level of the euro and that the ECB is divided between a fixed term

or flexible taper but he prefers a fixed term. 

- Asked whether scarcity of bonds in different national markets could cause

changes in the QE program, he said that fine-tuning was always possible but

there has been no discussion about changing fundamental parameters. 

- Germany's IFO came out slightly below expectations but because it is already

at elevated levels, the miss caused little reaction in markets. Periphery bonds

opened weak but have recovered, helped by a large IKZ7 block purchase.

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

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