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

     US TSYS SUMMARY: Treasuries opened NY Fri narrowly mixed, flatter, as

N.Korea overnight fired missile, UK had subway terror blast; prices did not fit

usual safe-haven bid expectations. Next:8:30 am ET US Aug retail sales; MNI poll

median est 0.1%, 0.5% retl sales ex-autos. - TOKYO: N.Korea missile sailed over

Hokkaido, Jpn & neared US's Guam before landing in Pacific; mild safe-haven bid

in Tsys but some later selling by trading accts, regional bks. Nikkei stk index

ended mildly higher. Unusual trading cld be as Jpn has Mon holiday, safe-haven

unwind speedier. 2way flow in Tsys and US swaps. 

- LONDON: Then a terror-tied explosion occurred in London subway, 18 injured.

But Gilts turned lower as BOE Vlieghe hawkishly urged future UK rate hike; also

pressured Tsys. Sources cited foreign central bank selling in 2s and 5s,

regional bk buying 5s and 10s. Some hope to buy Tsys, others to sell strength. 

- OVERNIGHT REPO: Tsy 5s, 7s and 10s tight. 

- US SWAPS: mildly tighter. 

- EURODLR FUTURES: Mildly lower. 

- HIGH-GRADE US$ CORPS: No issuance set today.

GILT SUMMARY: Gilts have taken another large knock lower, this time following

rather hawkish comments from Bank of England MPC member Gertjan Vlieghe, a known

dove, spurring rate hike expectations for November. 

- This time it is the 2-/10-year part of the yield curve that has come under the

most pressure and in-turn bear flattening the 10s/30s part of yield curve. 

- 10-yr Gilt yield 1.289%, up 6.2 bps on day.

- Gilts opened marginally lower as markets continued to digest the step-up in

BoE hawkish rhetoric Thursday, with some banks seen bringing forward calls for a

25bp rate hike at the next MPC meeting in November. 

- Gilts then spiked lower in knee-jerk reaction to hawkish Vlieghe comments --

Right time for rate hike may be in coming months. Plus in Q&A said he sees

tightening more than just reversing August cut. 

- Real yields in the 5-/10-year area have taken an even heavier battering, with

5-yr and 10-yr beakevens 7bp and 6.5bp tighter at 2.985% and 3.04%respectively.

While 5-yr swap spreads are over 6bp tighter at 32.1bps.

EGB SUMMARY: An eventful morning with a North Korean missile, a terror incident

on the London Underground (thankfully no fatalities) and a couple of central

bank speeches that moved the needle. 

- The reaction to the Korean missile was not significant as it seems the market

has become immune to such incidents. However, Bunds spiked on the news of an

explosion on a London underground but the big move of the day was linked to a

speech by a dove on the Bank of England, Vlieghe who appeared to endorse a near

term rate hike and later was quoted as saying that a tightening of monetary

policy might need to rise more than once if the economy develops as expected. 

- Gilt yields are 7-10bp higher today. However, the ECB's Lautenschlaeger from

the Bundesbank also put in a hawkish speech soon after Vlieghe and the Bund was

punished further, even if a hawkish speech by Lautenschlaeger is not so unusual.

- The rise in EGB yields has been led by the belly, with the Obl +3.2bp, the

Bund yieled up 1.6 bps to 0.426%. Peripherals are outperforming. 

- France announced the bonds and sizes for next Thursday's auction and Belgium

gave the size for their auction on Monday. There was no important data.

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

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