US TSYS IMPROVE AFTER WEAK START: CALMS ON SOLID 7Y AUCTION

     US TSYS SUMMARY: Treasuries crept higher Thu after starting NY lower, lg

end underperforming amid react to Trump tax plan/cuts (cld mean more Tsy supply,

fiscal stimulus, so higher stocks.) Fed Chr Yellen's recent Dec rate hike hint

and other Fed officials agreeing later Wed caused nerves. - Tsys began lower

after overnight technical sales as cash 10-year note broke above 2.326% 200-day

moving average, with other selling and TYX put buys too. (Later on, the 10Y

yield closed BELOW that 200-day avg, a positive sign technically for 10Y notes.)

- Tsys saw morning pre-auction shorts but mkt stabilized midmorning. Tsy futures

had decent short-end buying with 11,200 TUZ 2Y futures buying at 107-28.75, and

large 130K buying at 107.28.5. Heavy buying too in Dec'17 Eurodlr futures aided

front end; Dec rate hikes backpedaled a bit to 64.9% vs 71.3% late Wed. 

- Tsy futures saw block trades: buy of 9,500 FVZ 5Y at 117-16.5 at 8:10am ET;

then 9:40am ET sale of 11,662 TYZ 10Y 125-12.5, and sale of 9,120 FVZ 5Y at

117-18.75 at 12:07pm ET. 

- Superb Tsy 7Y auction demand: 70.6% indirects, 3rd best since 2009; stopped

thru to a 2.130% rate, large 18.95% directs, only 10.4% for dealers, some of

whom had to chase mkt up as missed auctn;cover 2.7. 

- Eurodlr options had better put sellers, call buyers. Tsys corp-tied hedges,

FX-acct buys/short-coverg on weaker US$; mild buying of 2Y, 3Y, 5Y cash, two-way

flows, early mild FX-tied sales, curve steeepenrs. Fri is month-, quarter- and

Jpn half-yrend. Fed had $209B one-day reverse repo operation. 

- TSYS 3PM ET: 2Y 1.455%, 3Y 1.578%, 5Y 1.896%, 7Y 2.126%, 10Y 2.309%, 30Y

2.869%.

     US TSY FUTURES CLOSE: Trading mixed by the bell, curve steeper w/ short end

well bid/extending top end of range early in second half. 10Y yld back to 2.307

after breaching 200-DMA earlier. Futures inched higher after strong $28B 7Y

goes, stopped through 2.130%, drew very strong 70.6% indirects. Current futures

levels: 

* Dec Ultra bonds down 6/32 at 164-22 (163-22L/165-03H) 

* Dec 30-yr Bond futures down 5/32 at 152-25 (152-01L/153-04H) 

* Dec 10-yr futures up 4/32 at 125-18 (125-02L/125-18H) 

* Dec 5-yr futures up 3.5/32 at 117-21.5 (117-12.5L/117-21.25H) 

* Dec 2-yr futures up 1.5/32 at 107-29 (107-26L/107-29.25H)

US EURODLR FUTURES CLOSE: Steady/mixed by the bell, short end well bid, dragging

strip off lows from midday on. Lot of short covering in Dec'17 as chances of

year end rate hike recede to 65.7% from over 71% late Wed. Current White pack

(Dec'17-Sep'18):

* Dec'17 +0.020 at 98.520 

* Mar'18 +0.025 at 98.415

* Jun'18 +0.025 at 98.315 

* Sep'18 +0.025 at 98.245 

* Red pack (Dec'18-Sep'19) +0.035-0.030 

* Green pack (Dec'19-Sep'20) +0.030-0.015 

* Blue pack (Dec'20-Sep'21) +0.015 to steady 

* Gold pack (Dec'21-Sep'22) steady to -0.010

US SWAPS: Of early mixed levels, spds running mildly wider by the bell, spd

curve back to flattening, fading current steepening in Tsys. Modest volume,

sources reported light deal-tied flow, receiver unwinds in the short end and spd

curve flatteners in 2s and 5s vs. 10s and 30s. OTC vol mixed, surface steeeper

w/gamma giving back recent gains, vega outperforming. Latest spread levels: 

* 2Y +0.75/25.62 

* 5Y +0.88/7.94 

* 10Y +0.12/-3.94 

* 30Y +0.12/-32.81

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

- Sep 29 Aug personal income (0.4%, 0.2%) 0830ET

- Sep 29 Aug current dollar PCE (0.3%, 0.1%) 0830ET

- Sep 29 Aug total PCE price index (0.1%, --) 0830ET

- Sep 29 Aug core PCE price index (0.1%, 0.2%) 0830ET

- Sep 29 Sep ISM-Milwaukee Mfg Index (55.41, --) 0900ET

- Sep 29 Sep MNI Chicago PMI (58.9, 59.) 0945ET

- Sep 29 Sep Michigan sentiment index (f) (95.3, 95.3) 1000ET

- Sep 29 Q3 St. Louis Fed Real GDP Nowcast 1100ET

- Sep 29 Phil Fed Harker; FinTech Impact on Bks,Pol,Consumers Q/A 1100ET

- Sep 29 Q3 NY Fed GDP Nowcast 1115ET

- Sep 29 16/17 grain stocks 1200ET

Eurodollar/Treasury option summary

Eurodollar options,

Blocks:

0437ET

+7.5k EOX 78/80p spds, 1.5

0434-0501ET

+10k EOF 85c, 1.5

Pit/screen:

+15k EDH 81/82p spds, 2.0 vs. 98.39

-15k EDZ 87c, cab

12.5k EDV 86/87c spds,

+10k EDF/EDG 81/82/83 2x3x1p fly strip, 4.0

-5k EDZ 86/87c spds, 1.0 vs. 98.50/0.05%

+7.5k EDU'20 77/78c strip, 88.5

--------------------------

-20k EOZ 78p, 1.0 vs. 98.16/0.10%

+15k EOV 82/83c spds, 1.0 vs. 98.16/0.10%

+10k EOX 78/80p spds, 1.0

+10k EOZ/EDZ'18 77/82 2x1p spds, 0.0

-7k EOZ 81/83 strangles, 9.5

+5k EOZ 77/80p spds, 2.5

+3k EOZ 80p, 3.0

--------------------------

10k E2H 77/80p spds, 11.0 vs. 97.94/0.22%

+10k E2Z 77p w/5k EOZ 80p, 12.0db vs. 97.95

+10k E2H 77/80 2x1p spds, 1.5

-10k E2V/E2X 77p strip, 2.5

-5.15k E2M 75/78 3x2p spds, 17.0 vs. 97.895/0.22%

-5k E2Z 77p, 4.0

-2.5k E2Z 80 straddles, 23.5

--------------------------

-3k E4Z 75/76p spds vs.

E4Z 80/81c psds, 3.5 steepener

-2.5k E3Z/E4Z 77p strip, 29.5

Tsy options

Block:

Late Wed, more on screen

+18k TYX 124+p, 14-19

0919ET

-16,220 TYX 123+p, 4

Pit/screen:

-5k TYZ 124+/126p spds, 47

1.8k TYF 120/122p spds, 7

1.5k TYF 123+/124/125p trees, 1

-1k TYZ 124+/125+p spds, 28

1k TYZ 125+/126+p spds, 43

--------------------------

4.4k USZ 162c, 7

--------------------------

5k FVX 118c vs. FVZ 117p combo, 0.0-0.5

2k FVX 118/118+ 1.2c spds, 1.5

1.15k FVZ 116/116+/117.2/117.7p condors, 13

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

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