US TSYS HIGHER;SOME PROFIT-TAKING ON N.KOREA/SAFE-HAVEN RALLY

     US TSYS SUMMARY: Treasuries end Wed higher but off morning high after mkt

consolidated on post-auction redistribution sales, so-so $23B 10Y auction. Tsys

began NY higher after overnight safe-haven bid on US Pres. Trump warning of

"fire and fury" if N.Korea did not stop threats; N.Korea then threaten US's

Guam. That pushed bonds up globally, stocks lower. But then Tsys faded off high

on deal-tied hedging, pre-auction shorts into 10Y, some rally profit-taking.

Tsys digested 0.6% 2Q Unit Labor Costs, 0.9% nonfarm productivity. 

- Long-end-led rally set new highs into NY open, upside call skew bid vs. OTM

puts. Real$, fast$ buying occurred, and short-covering in 10Y to long end; props

buying 2Y, 5Y. Later Tsys futures and cash market saw mild intermittent

profit-taking. 

- US Swap sprds widened early on supply-tied paying, later pared move. 

- 10Y auction tailed to 2.25% rate, somewhat soft 57.9% indirects, but good

6.81% directs, but still dealers had to mop up a fairly large 35.3%; but 10Y

sale later had profit. 

- TSYS 3PM ET: 2Y 1.335%, 3Y 1.495%, 5Y 1.797%, 7Y 2.055%, 10Y 2.241%, 30Y

2.818%.

US TSY FUTURES CLOSE: Higher by the bell, but well off highs from the first

half, futures gradually unwinding the carry-over safe-haven bid kicked off late

Tuesday when US Pres Trump "fire and fury" warning to N Korea, N Korea responded

w/threat against US strategically important island of Guam. Current futures

levels: 

* Sep Ultra bonds up 1-12/32 at 166-27 (166-02L/167-23H) 

* Sep 30-yr Bond futures up 31/32 at 154-22 (154-05L/155-08H) 

* Sep 10-yr futures up 10/32 at 126-10.5 (126-05L/126-18.5H) 

* Sep 5-yr futures up 5/32 at 118-10.75 (118-07.75L/118-15.75H) 

* Sep 2-yr futures up 1.5/32 at 108-06.25 (108-05.25L/108-07.5H)

US EURODLR FUTURES CLOSE: Higher across the strip/off highs to near middle of

range in the long end. Decent volume on net, would have been better if heavier

earlier flow had carried through to second half. Current White pack

(Jun'17-Mar'18): 

* Sep'17 +0.005 at 98.675 

* Dec'17 +0.015 at 98.550 

* Mar'18 +0.020 at 98.470 

* Jun'18 +0.025 at 98.410 

* Red pack (Sep'18-Jun'19) +0.025-0.035 

* Green pack (Sep'19-Jun'20) +0.030-0.035 

* Blue pack (Sep'20-Jun'21) +0.030-0.035 

* Gold pack (Sep'21-Jun'22) +0.040

US SWAPS: Spds wider by the close but off first half highs when spd curve

flattened around same time Tsys started to pare early safe-haven gains. Risk off

tone/wider spreads likely to hold in the short term, at least as long as

safe-haven/risk-off tone related to N Korea tensions continue. On the flip-side,

spds likely to compress sharply if geopolitical concerns cool/resolve. Flow

included deal-tied hedging, rate paying by specs in 2s and 5s. long end saw

little activity. OTC vol surged in 1-3M10Y sector of grid in the first half,

pared gains but finish higher by the close, call skew in OTC and exchange traded

options gained vs. corresponding puts. Latest spread levels: 

* 2Y +0.44/25.31 

* 5Y +0.25/8.00 

* 10Y +0.12/-3.75 

* 30Y +0.19/-32.06

OUTLOOK: *** Data/speaker calendar (prior, estimate):

- Aug 10 05-Aug Initial weekly jobless claims (240k, 240k) 0830ET

- Aug 10 Jul Final Demand PPI (0.1%, 0.2%) 0830ET

- Aug 10 Jul PPI ex. food and energy (0.1%, 0.2%) 0830ET

- Aug 10 Jul PPI ex. food, energy, trade (0.2%, --) 0830ET

- Aug 10 06-Aug Bloomberg consumer comfort index 0945ET

- Aug 10 NY Fed Dudley, Econ Press Brfng, Wage Inql NY Q&A 1000ET

- Aug 10 04-Aug natural gas stocks w/w 1030ET

- Aug 10 US Tsy $15.0B 10-Year Bond auction 1300ET

- Aug 10 Jul Treasury budget balance (-$90.2B, -$54.0B) 1400ET

- Aug 10 09-Aug Fed weekly securities holdings 1630ET

Eurodollar/Treasury option summary

Eurodollar options,

Block:

0646ET

-5k EOU 82/85 R/R, 0.5/-p vs. 98.35/0.35%

Pit/screen:

-14k EDV 86p, 8.5

+24k EDZ 86/88c spds w/+8k EDZ 87c, 9.5

+7k EDH 87/88/90c trees, 0.0

+5k EDZ 86/88c spds, 3.0

-5k EDZ 83p, 0.75

+2.5k EOF 82/83 2x1p spds, 1.5

+30k EOH 86/87/88c trees, 0.0

+30k EOZ 80/81p spds, 2.5, ongoing

+29.4k EOZ 86c, 1.5

Package trade:

-10k EOF 82 straddles, 26.5 vs.

+10k EOH 83/87 1x2c spds, 5.5 vs.

+5k EOF78/81 3x2p spds, 10.0 vs. 98.195

+6k EOH 90c, 1.0

+5k EOZ 88c

+3k EOQ 82/83 R/R, 1.0c ovr

+3k EOZ 85/86/87c flys, 1.0

+8k E2U 82c, 3.5

+5k E2U 80/82 R/R, 1.5+c

+2k E2Z 77/78p spds, 2.5 vs.

-E2Z 82/83c spds, 3.0

+2k E2Q/E2U 81 straddle spds, 9.5

+3k E3U 78/81 1x2 combo, 2.0

-4k E4Z 73/75p spds, 3.0 vs.

+E4Z 80/81c spds, 2.5

Tsy options

Block:

1010ET

7.5k TYU 126+c, 26

10k TYU 127c, 15

Pit/screen:

23k TYU 127c, 8-12

+22k TYU 127+c, 4-7

-20k TYU 124+p,1

15k TYU 128c, 2-3

3.6k TYV 125+/126+ 2x1p spds, 3

+3k TYZ 128c, 24-28

+2.5k TYV 128c vs.

-TYV 124/125p spds, 2-1net

+2k TYX 122/124/126p trees, 34

2k TYV 126+c, 34 vs. 126-04.5

2k TYX 124+p vs.

800 TYX 125+p, 16

+1k TYU 126+ straddles, 54

1k TYV 123+/124+p spds, 7

+8k FVU 119.2c, 2

-5k USU 155c, 56-58

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

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