US TSYS BEGIN NY MAINLY HIGHER IN QUIET PRE-HOLIDAY ACTION

     US TSYS SUMMARY: US Treasuries prices open NY Friday, month-end, yr-end

mainly higher, 30Y mildly weaker amid curve steepening. US Tsy/fincl futures

close 1pm ET, cash US bonds 2pm ET. Monday is New Year's Day holiday for bonds,

stocks, banks, and US govt offices. 

- TOKYO: Tsys began steady/mixed, short end then gradually turned better bid

into UK amid light volume. US$/yen weakness spurred FX-tied bid, along with

month-end, qtr-end and yrend positions. Most Asian stocks indexes end higher;

Jpn's Nikkei up +19% for 2017 or 23.8% on US$; China CSI 300 +22% for yr (30% in

US$ terms.)

- LONDON: Tsys bid on mainly soft Europe stks, except FTSE-100. Bid for 2Y-10Y

but long end dips to new overnight low recently. BBG/Barclays adv Tsys index

mo-end extensn 0.07 yrs. German DAX +12.7% on yr, +28.5% in US$; UK FTSE-100

+7.5% on yr, 17.8% in US$. 

- US SWAPS: Mostly wider, flatter, light flow; $47.1K DV01 3/5Y swap flattener.

- OVERNIGHT REPO: Final 2017 day, yrend "turn"; overnight repo has tighter Tsys

3Y, 5Y, old 5Y, 10Y. This wk's 2/5/7Y auctions settle early next wk.

GILT SUMMARY: Gilts have squeezed higher in late morning thin illiquid trade led

by the long-end, in-turn flattening the yield curve, despite slightly higher

than expected German regional flash inflation data. 

- 10-yr Gilt yield at 10;13am ET is -0.7 bps at 1.187% at 10:13am et. 

- The squeeze higher occurred just before 1100GMT and appeared across the curve

with front-end of the short sterling strip bought in decent size, but the

long-end rallied more due to lack of liquidity. 

- The rally in nominal gilts has outperformed linkers by around 1 basis point

and therefore breakevens have tightened. While swaps spread have barely changed

so far today. 

- In swaps there has been some activity, however this has been limited to a

5Y-10Y flattener and a 10Y-30Y steepener in small size.

EGB SUMMARY: German Bunds declined after digesting 1.6% yr/yr Dec. preliminary

Pan-German CPI/HICP, and 0.8% Mo/Mo. European core curves earlier pivoted

slightly with the Schatz yield a basis point lower and taking back some of the

recent rise but the 30Y is around 0.5bp higher. 

- The month-end extension is relatively small today and this can explain the

lack of any push to curve flattening

- German State CPI data earlier pointing to a 0.6%M/M print in the pan-German

release. However, Spanish December HICP has come in weak. Details in the

Eurozone M3 report showed a continued improvement in lending. 

- Peripheral EGB markets started underperforming early in the session. More

recently there has been news that the Spanish Citizens Party in Catalonia will

not attempt to form a coalition (despite being the largest Party) and so this

will leave the Separatists in charge. This should have been anticipated. 

- The 10Y Bund yield is up 1.6 bps at 0.431%

- Eurex trading hours are unchanged today.

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

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