ASIA/US/EUROPE BOND & STOCK RECAP: TSYS MILDLY WEAKER

     US TSYS SUMMARY: Treasuries open NY weaker, curves mixed (2/10Y steeper,

5/30Y flatter) after mixed overnight flows in a rangebound market. Bunds

recently declined in moderate volume as did Euro currency, after ECB minutes

show ECB concern about Euro strength. 

- TOKYO: Tsys had a range and 10Y note hit session low yield of 2.227% at

10:12pm ET Wed. Flows two-way: early intermediates bid, then misc acct selling,

position squaring in muted volume. Emerging mkt Asian and Asian real$ selling

and profit-taking in belly. Asian stocks declined: Nikkei off -0.14%. 

- LONDON: Tsys held range, dipped, and session high 10Y yield of 2.245% hit at

6:54am ET. Flows had misc acct buying in 3Ys, 5Y selling and mild two-way by

leveraged accounts in 5Ys. Foreign central banks and real$ buying in

intermediates aided. ECB remarks out 7:30am ET, said concerned on Euro

overshoot. Tsys recently ebbed amid FX tied sales on mild US$ bounce, then some

dip buyers came in; 10Y yield now at 2.239%. 

- US SWAPS: Spds steady/mildly wider out curve. O/N RP: 2Y, 5Y remain tight. 

- US HIGH-GRADE CORPS: Two issues so far for Thursday: Nederslandse

Waterschapbank, Municipality Finance.

GILT SUMMARY: Gilts traded mildly weaker, having pared earlier gains in wake of

perceived stronger than expected retail sales, however volume has been light in

subdued summer holiday trading. 

- UK 10-yr Gilt yield is +0.7 bps at 1.110%. Gilts initially opened on a higher

footing supported by release of FOMC minutes last night that highlighted

concerns over lower inflation and when the next interest rate hike should be,

but agreement on balance sheet reduction. 

- Sep Gilt though was capped at around yesterday's high of 127.76, with price

actually starting to drift lower ahead of UK retail sales data, before spiking

lower in knee-jerk reaction to higher than expected +0.3% m/m outcome. There was

some pull back as markets noted downward revision to June number, however prices

slipped further as attention turned to ECB minutes and US jobless claims. 

- Swap spreads are steady to wider, with the 10-yr +1.2bp at 7.7bps, while UK

breakevens are around 1bp wider across the board.

EGB SUMMARY: German 10Y note traded mildly higher on the day; had been lower

with Euro currency after ECB meeting minutes showed ECB worried on currency

strength. The Bund contract had a 163.71 to 163.99 range. 

- The Bund contract did open stronger than WEd in response to the dovish FOMC

Minutes but is now marking time until the ECB Account of the Monetary Policy

Meeting at 12.30BST. 

- Early on in UK session, there was a decent bid for the 30Y area of Italy and

the sector remains the best performing within EGB space. Clearly, this is the

highest yielding (liquid) bond in the Eurozone and encapsulates the theme today:

yield-hunting. 

- On the data front, the final Eurozone HICP data perfectly matched the flash

release and so lacked any market impact. Strong UK retail sales data briefly

pushed the Bund contract down 3-4 cents but this was quickly clawed back. 

- Longer dated swap and futures contract invoice spreads are hitting recent

wides and the 10-Year Bund-Portuguese spread is close to a 19 month low at

235bp.

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

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