The UST curve has pushed back.......>

US TSYS SUMMARY: The UST curve has pushed back against its recent flattening to

demonstrate some rare steepening, mainly between the 5Y and 7Y section of the

yield curve. Note that there is a 7Y auction later today and yesterday's 5Y was

a very poor affair.

- Some of the weakness in the UST market is being explained by a relief that

year end turn dollar funding markets are not showing the kind of stress feared.

Last week saw $10bln taken from the ECB dollar facility. The 3m EURUSD cross

currency swap has normalised somewhat and has helped to push up some short-dated

German yields.

- Flows have been small in cash Treasuries and futures but swap markets have

seen some 5-30Y steepener trades done.

- Data is limited to initial jobless claims and MNI Chicago PMI later today and

the aforementioned 7Y note auction is at the usual time of 1pm Eastern. Friday

sees a 0.07Y duration extension.

- The FX market is attracting considerable attention and dollar weakness is

being explained by month end currency re-balancing.