ASIA/US/EUROPE BOND & STOCK RECAP: TSYS HIGHER, CURVES FLATTER

     US TSYS SUMMARY: US Treasuries prices open higher, flatter after overnight

gains on safe-haven buying spurred by ongoing U.S./N.Korea tensions. Cash 10Y is

at 2.199% vs. 2.189% session low yield of 7am ET. All next await the 8:30am ET

July CPI. 

- TOKYO hours saw Japanese markets closed for a holiday; will be Obon holidays

in Japan next week. Tsys had carry-over risk-off bid for rates added to Thu's

curve flattening rally, bank and real$ accts bought 10s and 30s. FX-acct buying

as USD weakened. Japanese lifers also bought US Tsys, as did Japanese banks and

credit funds. 

- LONDON: Tsys lagged German Bunds but held gains; mild prop and fast$ selling

arose in 10Y notes. BMO analysts said cash 10Ys most active with 39% market

share. 

- US SWAPS: Spreads ran steady/mixed, with spread curve a bit flatter. 

- US EURODLR FUTURES: Mildly higher for the most part. 

- O/N REPO: Tsy 2Y note remains tight; others quiet. 

- US HIGH-GRADE CORPORATE BOND ISSUANCE: Quiet; but in junk bonds, Tesla Inc.

brings a $1.5B 8Y/NC3Y note to price today.

EGB SUMMARY: There was an initial rush higher in the Bund contract as investors

traded geo-political threats. However, the quite dramatic move higher ran out of

steam after a couple of hours. 

- Contacts reported that government bond and swap trading desks were quiet, in

terms of volumes and noise and once again, pointed to a futures markets being

the driver. 

- The Bund yield bull flattened strongly, the 2Y dropped 1.7bp and the 10Y by

3.1bp to 0.385%. Yet, in the rally over the past couple of days the Bund

contract volatility skew has switched its leaning from investors hedging the

downside in price, to higher implied vols on the upside. This brings at least

the threat of an ALM driven move if rates head lower. 

- All EGB markets are underperforming Germany and Italy is leading the

underperformance. The Bund-BTP spread has reached 165.6bp after a 3.6bp widening

this morning. Not helping BTPs is an IlSole24Ore article talking of potential

legal issues for pension reforms in October that could a significant influence

on State finances.

GILTS: Block Trade in Gilt 10y futures earlier with 3062 contracts done at

128.06. Sources said it was a sale; trade was done prior to 6:30 am ET.

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

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