Markets were caught off guard when.....>

BOND SUMMARY: Markets were caught off guard when NY Fed issued a clarification

of an earlier speech from its Pres Williams, who argued for the benefit of quick

policy response to economic difficulties. The speech was widely read as a dovish

signal, but subsequent clarification got investors thinking. T-Notes trade

-0-00+ at 127-20, away from the session low of 127-14+. NY Fed's statement sent

them diving from highs touched yesterday on dovish remarks from Williams,

Clarida & Bullard. Cash Tsys also bid thanks to the NY Fed's clarification, with

the curve bear flattening. Eurodollars are 1.00-2.75 ticks lower thru the reds.

- JGBs have fluctuated, last trade at 153.59, 4 ticks above settlement, even as

the Nikkei 225 is extending gains. Cash JGB yields are a touch lower across the

curve. No reaction was noted to local CPI data, which matched market forecasts.

1-5 Year JGB liquidity enhancement auction is exp. in Japan later today.

- In Australia, YM last seen 0.5 tick higher with XM 2.0 ticks higher; price

action subdued in the absence of local headlines and data releases. Aussie bonds

have played catch-up to the overnight rally in Tsys, which leaves yields sitting

0.2-1.7bp lower & the curve steepener. Bills trade -1 to +2 ticks thru the reds.