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

     US TSYS SUMMARY: US Treasuries remain weaker, steeper after overnight

selloff in Asia as GOP-dominated US Senate passed the fiscal 2018 budget. 

- TOKYO: Tsys opened near steady, then had a steepening selloff after U.S.

Senate adopted budget resolution. Sources reported brisk selling across the

curve, fast$ and regional bank selling in 10s and cash 5s and 10s. Bank sellers

occurred too in 7Ys. US swaps had paying. 

- LONDON: Tsys remained weaker, as did EGBS, in ongoing reaction to budget news,

which holds up the prospect, though challenging, of potential tax reform/cuts in

months ahead. Tsys saw choppy trade: fast$ and prop acct buying, and

profit-taking at the lows. Mild options-tied hedging occurred amid renewed heavy

low-delta put buying. FX-tied selling in Tsys as US$ rebounded vs. Jpn yen. 

- US SWAPS: Mostly tight; overnight light rate paying, deal-tied hedging in 2Y,

5Y; fast$ payer unwinds in 10Y. 

- OVERNIGHT REPO: Current 3Y note trades at negative rate, -0.25%.

GILT SUMMARY: Gilts opened lower this morning in the London session and

continued to head south for much of the day. The move was a response of the US

Senate vote regarding the budget resolution. The 10Y gilt yield is currently

trading at 1.324% near intraday highs. 

- President of the European Council Donald Tusk tweeted earlier that "Brexit

conclusions adopted. Leaders green-light internal EU27 preparations for 2nd

phase." Although, the tweet from Tusk provided a glimmer of positivity in the

largely deadlocked talks, UK PM Theresa May admitted in a speech earlier that

there is still some way to go in terms of the negotiations. 

- There was a 5k Gilt block soon after the open, likely a sale. 

- 2-yr Gilt yield is +2.4bp at 0.0.435%, 5-yr +3.9bp at 0.766%, 10-yr +5.4bp at

1.321% and 30-yr +4.9bp at 1.892% according to Tradeweb. 

- Swap spreads are trading mixed with the 2Y spread almost unchanged. All

movement in nominal yields sits within the real yield space and breakevens are

almost unchanged.

EGB SUMMARY: As the US Senate passed the tax reform bill, risk sentiment has

improved in financial markets generally. There have been no sudden drops from

the Hang Seng or elsewhere today and so EGBs have been on the defensive. 

- The German curve is bear steepening and the 10Y yield has leapt 5.2bp since

the previous night's close. 

- Futures market volumes have been high and stop-loss activity was evident in

some of the sudden lurches lower in the market. 

- In Spain, local newspapers are picking up an agreement between Rajoy and PSOE

opposition leader, Sanchez that Catalan elections would be called in January.

Market participants interpret this move as a short-term band-aid that will

permit carry trades to be re-implemented in the periphery. As such, BTP buying

was strong this morning and led by solid 10Y purchases. BTP buying has been

creeping up the curve this week. 

- Belgium announced it would sell E2.3-2.8bln of 3 bonds on Monday.

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

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