ASIA/US/EUROPE BOND & STOCK RECAP: TSYS WEAKER, TWO-WAY FLOWS

     US TSYS SUMMARY: Treasuries open NY weaker, flatter after overnight range

into 2pm ET FOMC mtg, 2way flow then ebb starting 4:20am ET. Mkt expects 25-bps

US rate hike; Fed Chr Yellen holds 2:30pm ET news conference. 

- TOKYO: Tsys opened steady then gained with buyers of 5Y, 10Ys; US$/yen waned

on Alabama US Senate race appearing to go to Dem. Doug Jones, who beat Roy Moore

in tight race; Moore not conceding, wants recount. (That tightens Sen GOP

majority to 51-49). 

- Tsys later ebbed amid selling as mkt realized despite Jones' win, he won't be

seated until early Jan so won't affect US Senate tax bill progress. Fast$, prop

sellers into UK. 

- LONDON: Tsys carryover sales by fast$ and prop accts. Then Tsys weakened,

tracking German Bunds lower. Bank portf dip buying in 10Y, 30Y Tsys; other 5Y,

10Y buying. 

- US SWAPS: Mildly tighter. Bank rcvg across US swap curve, and curve receiving.

- US CORPORATE ISSUANCE: Nothing Wed.

GILT SUMMARY: Gilts are trading modestly lower with the yield curve bear

flattening as the short-end underperforms, likely weighed by mixed UK labour

market survey. While long-end under pressure from fall in German Bund and 2036

IL Gilt re-opening auction, albeit in light illiquid trade. - 2-yr Gilt yield is

+2.0bp at 0.491%, 5-yr +1.8bp at 0.746%, 10-yr +1.3bp at 1.236% and 30-yr +1.3bp

at 1.811% according to Tradeweb. 

- Gilts actually opened modestly higher with the yield curve shifting around 1bp

lower across the curve as Tory rebels look to defeat the government in the House

of Commons on an amendment to the EU Withdrawal Bill. 

- Markets turnaround shortly before release of UK data however, led by sell-off

in German Bunds and then dropped lower possibly on risk of higher Gilt issuance

following large drop in employment. While short end was likely weighed by rise

in average weekly earnings to 2.5% 

- Gilt future spiked to session low in wake of 2036 IL Gilt auction possible on

back of a 500 lot Gilt block sale, but quickly recovered in light buying. 

- Attention now turning to US CPI data and FOMC rate decision this evening.

EGB SUMMARY: After trading fairly flat in early Europe the Mar-18 Bund contract

dropped sharply from 163.40 to 162.91. The reason behind the fall was initially

unclear, but it was later noted that there appeared to be a large swap trade

that went through, which would explain the large downward swing. It is also

worth pointing out that there is a technical congestion area around this level,

which could provide some support. 

- The RXH8 contract is currently 30 ticks lower at 162.97. 

- There were reports that Facebook would non longer be booking non-US revenues

from large advertisers through Dublin. If replicated by other major tech

companies it could reduce the amount of tax collected by the Irish government in

the future. The Bund-Irish spread is 1.1bp wider at 21.2bp. 

- On the supply side the DMO sold Stg800mln of 0.125% March 2036 IL Gilt 0.125%

March 2036 IL Gilt with average real yield of -1.650% and bid-to-cover ratio of

2.34. 

- The markets will be eyeing US inflation data due to be released at 1330GMT and

FOMC monetary policy decision at 1900GMT.

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

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