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

     US TSYS SUMMARY: Treasuries open Wed NY higher, flatter after gaining since

7:10am ET after overnight mixed flow, range. US stock index futures weaker while

European stocks mildly lower. US 10Y yield is 2.201%, vs. 2.192% hourly yld

support of Aug. 21. 

- TOKYO: Tsys saw risk off buying in 5s and 10s as US Pres Trump threatens to

shut govt if needed to get funding for US-Mexico border wall; said US could

eventually leave NAFTA. Modest FX acct buying as USD dipped vs. JPY. HKG shut:

strong taiphoon. - LONDON: Tsys pressured by firmer Europe PMI and EGB supply so

early sales then bank portf. 10Y buying; real$, hedge fund mixed 30Y flows.

Sep/Dec Tsy futures rolling revs up. 

- Additional overnight flow included better sellers in 2s-10s as well as

flatteners in 2s, 5s and 7s vs. 30s by real$ and hedge funds. Robust buying

off-the-runs and basis trades -- carry trade interest picking up in low vol/late

summer trade.

- US SWAPS: O/night macro fund 2Y receiving; prop and option-tied receiving in

5Y; macro acct paying 10s. Apparent payer E110M in EUR 5Y swap 12:37 BST/7:37am

ET; talk GBP85M 6Y swap earlier. 

- OVERNIGHT RP: Tsy 2Y, 5Y, 10Y tight. 

- HI-GRADE CORP BD ISSUANCE: Devlpmt Bk of Japan launch $1B 5Y(MS+42), $800M 10Y

(MS+59);KfW today.

GILTS: Sep Gilts continue to push higher around 8:54am ET, hitting fresh session

high of 127.90, seen supported by move in US Treasuries as NY session got

underway and amid reports of a receiver in a Stg85mln 6Y swap a little earlier.

Sep Gilt last 15 ticks higher on the day at 127.87

- Earlier, Gilts traded modestly mixed on back of upbeat Eurozone flash PMIs,

but are off session lows in wake of strong 5-year Gilts re-opening auction. 

- Gilts opened little changed but then dipped lower, seen weighed by payer in 7Y

and 9Y swaps, each above Stg130mln and as markets prices in concession ahead of

5-yr gilt re-opening auction. Upbeat Eurozone PMIs then also weighed on

sentiment. 

- Markets also picked up on press reports that the UK Government is expected to

say later today that it does not want the European Court of Justice (ECJ) to

have "direct" jurisdiction over the UK. Some seeing this as a slight compromise

and could pave the way for negotiations to progress next week. 

- Demand at 5-yr Gilt supply coming in above average of last 6 auctions and tail

falling below avg then supported recovery in Gilts. 

- Recovery in German Bunds then supported another bid in Gilts.

EGB SUMMARY: The EGB market is almost a replica of yesterday with the Bund and

other core markets going through a number of oscillations but with little in the

way of net yield change. However, the BTP market has taken another significant

hit. 

- The morning's bond trading started poorly in Europe with strong PMI data for

Germany being the principal reason for the drop in EGB prices. 

- A speech by Draghi provided no insight upon current monetary policy but very

soon after the speech was published on the ECB website, the BTP market ran into

some quick selling. The Bund-BTP spread has widened by 4bp to 174bp and Italian

debt took the Portuguese market with it. The Spanish debt market somewhat

side-stepped the pressure but, not entirely. 

- There has been considerable swap activity in the 4 and 5Y section of the EUR

curve, most of which appears to be receiving. 

- Germany sold E3bln of 10Y paper this morning but the bids (E3.086bln) only

just squeaked over the amount being sold in what was a very disappointing

auction.

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

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