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

     US TSYS SUMMARY: US Treasuries open NY mixed (30Y lower) and steeper after

market drifted lower since about 4:40am ET, then held a range. 

- TOKYO; Tsys get a mild lift as Fed chair Yellen (departing in Feb. 2018) cited

"some hint" that inflation expectations moved lower; she warned against removal

of policy accommodation too quickly. Tsys then settled into a range as US real

money accounts bought long end Tsys. 

- LONDON: tight Tsys range but weakened after speech from ECB executive board

member Coeure. Tsys saw bear steepening action, though German Bunds bear

flattened. Bank portfolio selling occurred in the front end. 

- US SWAPS: US swaps saw macro paying in 10Y and 30Y while macro receiving

occurred in the 5Y. Bank paying occurred in three years. 

- OIL: Crude oil prices rose. 

- OVERNIGHT REPO: Tsy 5Y tightening to -1.10%, while 10Y at 0.50%. 

- US$ HIGH-GRADE CORPORATES: Most likely will be a light issuance session.

Credit spreads are tightening, said FTN's Jim Vogel "along with renewed progress

in global equity trends." 

- US EURODLR FUTURES: Mixed; Whites-Greens outperform.

CALENDAR: For US bonds, SIFMA is NOT recommending an early close Wed but the

Treasury market is clearly shut Thursday and there is an early close on Friday

(1pm ET CME Financial Futures, 2pm ET cash bonds.)

GILT SUMMARY: UK Gilts trading steady to lower digesting UK Autumn Budget

announcement, weighed by large selloff in German Bunds in wake of Coeure

comments that said QE language likely to change next year. 

- The large sell-off in German 5-yr Bobl dragged the 10-yr area of Gilts sharply

lower after a promising start, but 2-yr has hold its ground therefore 2s/10s has

steepened by 3.5bps while 10s/30s is 0.6bp flatter. 

- 10-yr Gilt yield was 0.4 bps higher at 1.276%; Gilt peaked in price about

8:15am ET. 

- Hope is building that Brexit discussions will move onto trade talks in

December following UK cabinet decision to raise the divorce bill, with a

possible deal in the next 3-weeks. The FT cite sources that May could submit the

offer to Tusk and Juncker at their dinner meeting on Dec 4. 

- Turning to the Autumn Budget, Hammond said UK on track to balance finances in

next Parliament. He had been expected to keep a tight hand on finances so focus

will be on future borrowing with OBR expected to cut its productivity forecasts.

- Swap spreads are mixed with 5-yr -1.1bp and breakevens are steady to +0.6bp

MNI: UK HAMMOND: STRUCTURAL DEFICIT SET TO HIT 1.3% 2020-21 

HAMMOND: DEBT/GDP 86.5% 2017-18; 86.4% 2018-19; 86.1% 2019-20 

HAMMOND: DEBT/GDP 83.1% 2020-21

HAMMOND: 2017-18 PSNB-X STG49.9BLN; STG39.5BN 2018-19

UK HAMMOND: ON TRACK TO BALANCE FINANCES IN NEXT PARLIAMENT

UK HAMMOND: CONFIRMS BOE CPI TARGET AT 2.0%

UK HAMMOND: 2017 GDP 1.5%; 2018 1.4%; 2019 1.3%; 2020 1.3%

EGB SUMMARY: German Bunds rallying as UK's Hammond delivers UK budget. Seeming

fiscal prudence and lower 2018 growth forecasts on the basis of lower

productivity.|

- Earlier, Bunds fell and fell and fell on Wednesday. The initial selling

appeared quite focussed on the 5Y Bobl contract and the CTD into the Bobl is the

weakest on the German curve today. Futures and cash have underperformed swaps

quite significantly today. 

- Selling then started to spread but contacts talk of limited sizes involved.

The weakness of the 5Y was also partially explained by 5-30Y curve steepeners

being cut out. Others points to a Coeure speech in which he spent time talking

about a switch from linking QE to inflation to a time when rate hikes are linked

to inflation (hence the 5Y weakness). 

- The initial, relative strength of the 30Y meant that the Bund 2048 auction set

up was very late and just before the auction cut-off, the 2048 dived. This

appeared to work as bidding turned out to be decent. 

- Italy also undertook a buy-back operation of 5 2018/19 lines and ended up

buying a decent size of around E5.5bln. 

- Peripheral spreads are tighter led by the 2.9bp decline in the Bund-Bonos 10Y

spread.

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

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