US TSYS OPEN NY HIGHER ON O/NIGHT SAFE-HAVEN BID/N.KOREA WORRY

     US TSYS SUMMARY: US Treasuries open NY higher, flatter after overnight

risk-off buying amid more US-N.Korea tensions, which pushed global stocks

weaker, gold +1.01% now, oil+0.57%. Tsy will sell today a 1pm ET $23B 10Y

auction. 

- TOKYO: Tsys gained amid US Pres. Trump warning N.Korea to halt threats against

US or face "fire and fury" consequences. N.Korea then threatened US's Guam. That

spurred short cover/outright safe haven buying in best O/N volume of week, bank

and insurer portfolio buying initially in 10s. Real- and fast$, foreign central

bank and regional banks and credit-tied buying in shorts to intermediates,

FX-tied buying as well as USD weakened, Asian acct buying long end. AP cited Sec

of State Tillerson recently saying not seeing an N.Korea "imminent threat". 

- LONDON: Tsys higher amid carry-over risk-off buying extended Tsy rally, misc

acct buying 5s and 30s, corp-deal and pre-auction hedging sales; real$ two-way

in 30s. 

- US SWAPS: Mixed but stable.

- US EURODLR FUTURES: Higher across strip, good call buying in short Dec (Dec'18

sector.) 

- O/N RP: Tsy 2Y, 3Y, 5Y, 10Y tight. 

- US CORPORATES: Wed: So far only Cerro del Aguila $650M 10Y; more likely.

     EGB SUMMARY: North Korean events created a spike in Treasury prices

overnight and Bunds opened higher but it took around an hour before the

full-fat, risk-off movement in global markets was in full-swing. 

- Markets are thin and the initial movement was futures-led, with more two-way

flow in the 10Y Bund cash benchmark. 

- Late morning saw news of another terror attack in a Parisian suburb in which 6

soldiers were injured, although the market has unfortunately become quite immune

to such news. 

- The rise in the Bund contract petered out at 163.79 at about 15 minutes before

the 5Y Obl auction cut-off. The setup for the auction was far from ideal and was

very poorly bid, pushing the German markets down further. Just over E3bln in

bids were seen for the E4bln available for sale and was the worst bid-cover

ratio in an Obl since July last year. 

- Despite the risk-off trading environment, peripheral spreads held in fairly

well. The Italian BTP market widened 3.9bp to Germany and was the poorest in the

periphery.

GILT SUMMARY: UK Gilts were largely onlookers in the global risk-off movement in

markets on Wednesday. The spread to Bunds has been stable at 67.7bp, alongside a

Gilt yield decline of 3.7bp at 10-Years.

- The FTSE has declined by less than in other European markets, registering a

0.8% daily decline and sterling managed to recover some of its recent weakness. 

- The only data came from the Bank of England's Agents' Report, which reported

some difficulty in hiring although hiring plans were modest. 

- Most of the decline in the nominal yield has come in the 'real' space as the

10-year index linked Gilt yield has declined 3bp today.

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

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