ASIA/US/EUROPE BOND & STOCK RECAP: TSYS WEAK:PRESSURED BY EGBS

     US TSYS SUMMARY: US Treasuries open NY weaker after overnight ebb began 2am

ET, picked up a bit at 4am ET, stabilized 5am ET. Tsy 2/10Y, 2/30Y steeper. Tsys

saw shorts/sales into 1pm ET US$28B 7Y auction. US stk index futures mildly

higher; European stocks weak. 

- TOKYO: Tsys opened mildly weaker, held narrow range into UK crossover. Flow

included misc sellers in 5s and 10s. 

- LONDON: Tsys slipped to new lows amid selling in Bunds and Gilts reportedly in

balance sheet reduction; Tsys bottomed out 5am ET at 2.441% 10Y yield then lower

range. Flows also included bank portfolio selling in 10s. No help from weak US$:

black boxes seem to refrain from buying/selling Tsys for FX reason near yrend. 

- US SWAPS: Mildly wider, flows: mixed flys (belly receiving short end: $140k

3s4s5s, $113.2k 4s5s6s; belly paying out curve: $125.4k 10s15s20s, $78.6k

20s25s30s). Recent $500M receiver in 1s, 1.885% and 2Y switch around

2.3175-2.320%. 

- US HIGH-GRADE CORPORATE BOND ISSUANCE: None until New Year; then a busy Jan.

- OVERNIGHT REPO: Treasury 5Y, old 5Y notes, 10Y tight.

GILT SUMMARY: UK Gilts opened weak and continued lower through most of the

morning and largely following the more sizeable sell-off in the Bund market.

However, buying appeared by the middle of the morning and around half of the

losses have been reclaimed. 

- Presently, the 10Y Gilt yield is 1.4bp higher at 1.186% and the curve slope is

marginally flatter. 

- The rise in yield is completely contained within the real yield space,

breakevens have been virtually static so far on Thursday. 

- The FTSE is largely flat but sterling is taking advantage of across-the-board

weakness of the dollar such that cable has reached 1.3435. 

- The only data was UK loans for hour purchase for Nov, which dipped to 39507

from 40417 and is the lowest since Sept 2016.

EGB SUMMARY: The front end of the German curve has undergone some very

disjointed trading because of the absence of traders today. For instance, a 14

Dec 2018 Schatz has spiked 8bp higher today, likely resulting from the fact that

it will fall out of bond indices tomorrow and there is a lack of balance sheet

to soak up the trading. Around 4am ET, selling in the 30Y Bund caused a strong

underperformance of that sector of the curve. 

- Generally, yields are higher in core Europe but usual correlations between EGB

debt markets are in shatters. The 10Y Bund yield is 3.7bp higher to 0.419% and

that change is fairly representative of what is happening elsewhere on the

curve. The 2Y Schatz is most interesting as it reaches the highest yield since

July. 

- Peripheral debt markets are outperforming despite the Italian BTP/CCTeu

auction today. The 10Y Bund-BTP spread is 5bp narrower and very similar to the

spread movements in Spain and Portugal. Bunds are also underperforming the EUR

swap curve fairly significantly. The PSPP does not get underway again until Jan

2 but there is a E20bln Bund redemption on Jan 4.

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

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