ASIA/US/EUROPE BOND & STOCK RECAP: TSYS SLID: TRUMP/TAX,YELLEN

     US TSYS SUMMARY: US Treasuries open NY Wed lower, steeper amid US tax

reform chatter (Pres. Trump to unveil details in Indiana speech today including

20% corp. tax rate), and on Tues Fed Chr Yellen Dec rate hike hint, firmer US

dollar, weaker German Bunds. Tsy futures had heavy volume, TYZ 10Y recently

around 731,562 volume. 

- TOKYO: Tsys declined amid firmer US$/weaker yen as Jpn PM Abe called for snap

election, plus Yellen/Dec hike concern. Moderate selling started and gained fuel

on tax reform; Tsys saw asset managers and real$ sold 10Y and esp. heavily sold

5Y notes ahead of 5Y auction. 

- LONDON: Tsys futures hit hard early amid many sales clips, sell-stops hit too.

Fast$, real$ and foreign central banks and US banks sold Tsys while end-users

did dip buying. Dip buying too in 5y, 10Y, 30Y; hedge funds bought 5Y notes.

Foreign central banks specifically either sold Tsys front end or else 5Y notes.

Technical selling too. 

- Eurodlr futures lower/near lows; talk heavy o/night buying Eurodlr calendars.

Eurodlr options 7:56am ET block of 15,000 short Dec 80 puts, 3.0.

GILT SUMMARY: Gilts hopped on the back of the sharp drop seen in German Bunds,

with yields higher and curve steeper, but fairing much better than its European

neighbor as strong demand at it's 20-yr IL gilt re-opening supports Gilts. 

- 2-yr Gilt yield is +1.4bp at 0.461%, 5-yr +3.5bp at 0.797%, 10-yr +4.1bp at

1.373% and 30-yr +3.8bps at 1.942% according to Tradeweb. 

- Rating agency DBRS' comment that the UK's current AAA rating "could come under

pressure" if there is "policy uncertainty and changes to the economy that stem

from the UK's new trade arrangements with the EU result in significant output

loss", was also seen underpinning Gilts. - Gilts opened modestly lower and then

extended losses, hitching a ride on the German Bund sell-off. Speculation on the

move lower was on expectations o US Trump's tax reform speech later today. 

- The UK's DMO sold Stg950mln 0.125% March 2036 IL Gilt, with bid-to-cover

jumping higher, as real-yield drops, never-the-less Gilts recovered off lows. 

- Breakevens are modestly wider with 30-yr 1.1bp higher, while swaps spreads are

slightly tighter across the curve.

EGB SUMMARY: German Bunds have seen heavy selling from the start of the European

session, with a number of stops seen triggered in Bund future as it dropped from

161.68 to 160.78, along with a large 5s/10s steepener trade being executed early

on and significant downside plays in options as well. 

- German 10-yr yield is 1.383% yield up 5.4 bps.

- German bunds opened lower at the start of London session on the back of

slightly weak US treasuries in Asia, and there did not appear to be any catalyst

for the heaving selling that happened shortly afterwards. However traders

reported a number of stops being triggered in German 10-yr Bund contract (2 x 5k

RXZ7 sold at 161.17 & 161.01) following large 5s/10s steepener trade -- E1.16mln

a basis point. Also 2 large downside trades bought in Bund put options. 

- One theory is that markets are looking ahead to US Trump's speech on tax

reform later, as EGB curves steepen and Euro sells off vs US Dollar - European

periphery are faring better with Spain and Italy 4.8bp and 3.5bp tighter

respectively.

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

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