US TSYS OPEN NY WEAK, THEN RISE ON WEAK US CAR SALES

     US TSYS SUMMARY: UPDATE: Treasuries jumped higher midmorning NY after weak

car sales.

US TSYS SUMMARY: Treasuries open NY mildly lower, flatter after mkt peaked about

6am ET. Mkt awaits 8:30am ET June personal income/spending report which has PCE

deflator that Fed watches. Tsys futures long end outperforming on moderate

volume (TYU leads w/260k). 

- TOKYO: Markets digested firmer China PMI. RBA deemed dovish. Tsys saw credit

tied selling in 5s, real$ bought intermediates. Asian stks gain, Japan's Nikkei

+0.3%; Australia ASX-200 +0.91%. 

- LONDON: Tsys range, 2way flows in intermediates, bk portfolio selling in 5Y,

10Y. Mild buying in belly to long end by hedge funds, real$. Tsys underperform

German Bunds amid late month end bid. MBS saw overnight buying. Ex Fed Chr

Greenspan said US rates 'unsustainably low", cld be "fast" corrective rate rise,

said Bloomberg. US stk futures firm: S&P E-mini +5 to 2473. NYMEX crude oil

-0.27% at $49.90/barrel. 

- US SWAPS: O/night bk portfolio paying intermeds; fast$ receiving. 

- HIGH-GRADE US CORPS: Tues ADB 5Y/10Y, KFW $1B 4Y, Axis Bk 5Y bmk and NWB 2Y

FRN. 

- US AGENCIES: FHLBks passed on it sissuance slot today. 

- O/N RP: Old Tsy 5Y note tight.

EGB SUMMARY: After a slow start Bunds have slowly drifted higher, curves bull

flattening helped by slight downward revision to Eurozone manufacturing PMI,

decent upward price action in futures in wake of good demand at 10-yr Gilt and

2-yr Schatz auctions. German 10-yr Bund yield last 2.2bp lower at 0.521%. 

- It was a steady start in the European Government Bond markets with the 10-year

Bund initially trading in a tight 19 tick range with little direction seen

overnight. The US Dollar was slightly weaker due to continued political turmoil

in the US. While the RBA decided to leave rates unchanged as expected. 

- Bund started to squeeze higher as French final mfg PMI was revised lower which

weighed on overall EMU mfg PMI. Consistent but small buying out the German curve

in illiquid summer markets, decent demand at both 10-yr Gilt and 2-yr Schatz

auction then helped Bunds tick higher. Some also suggested market tried to go

short into month-end/supply and were now covering those positions. 

- EMU periphery have given up earlier gains versus German Bunds as support from

large Spain and Italy redemptions diminish as Bunds squeeze higher. Markets also

looking ahead to Spain supply on Thursday.

GILTS SUMMARY: Sep Gilts future at 9:50am ET were still lagging the recovery

seen in US Treasury futures, despite following them on the way down. Sep Gilt

last 15 ticks lower on the day at 125.87 with 10-yr yield 1.3bp higher at 1.243%

- Earlier Gilts traded mixed again with the long-end outperforming following

solid 10-year Gilt auction and therefore flattening the yield curve. While the

short-end is seen weighed by upbeat UK manufacturing PMI and BoE Super Thursday.

- Gilts opened lower however, taking cue from soft US Treasuries overnight,

continued strength in the pound vs US Dollar and the upcoming 10-yr Gilt

re-opening auction for Stg2.25bln. 

- Gilts then saw some selling in wake of stronger than expected UK mfg PMI (55.1

vs consensus of 54.4), but quickly recovered in run-up to 10-yr Gilt auction

close with primary dealers seeing good demand. - The good demand at the auction

was confirmed with demand coming in at 2.56 times vs 2.28 previously which

supported another move higher in Gilts. But some profit taking saw Gilt fade off

session highs. - Swap spreads are little changed while 5-yr & 10-yr breakevens

are 1bp wider.

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

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