US TSYS RISE: RISK-OFF; ASSET ALLOCATN;SHORT-COVER,WASH.NERVES

     US TSYS SUMMARY: US Treasuries ended Wed higher amid risk-off mood, forced

short-covering, FX-tied buying as US dollar ebbed vs. JPY, and curve flatteners

done. 

- Tsys began NY higher, flatter and then saw more risk-off buying in reaction to

Tues night Trump remarks about saying would force a govt shutdown if needed to

fund US/Mexican border wall; (Congress' Ryan in late afternoon said most people

do not support any such shutdown). 

- Tsys had some asset allocation as Tsys bought/vs. stock sold, said traders,

with a buy program in Tsy futures: roughly 8:28am ET: 4,000 contracts bought in

USU7 (Classic Bonds); 15,000 bought in TYU (10Y futures) and 9,000 bought in FV

(5Y fut). Tsys had FX-tied buying amid weak US$/yen. EGBs rose too, risk assets

suffered. 

- US stocks retreated after Tuesday rally; Sep to Dec Tsy futures volume picked

up in earnest: +75K buy of FVU/FVZ at 9.0 early NY. Mild deal- tied flows. July

new home sales weaker than expected: -9.4% to 571K. Fitch said may review US AAA

rating negatively if can't get debt ceiling raise before "X" date (several wks

away.) Eurodlr futures end higher too, late flatteners. 

- Tsy had mixed $13B 2Y FRN reopen: 6 bps discount margin, OK 50.1% indirects,

light 0.37% directs, mildly large 59.6% dealers. 

- TSYS 3PM ET: 2Y 1.313%, 3Y 1.449%, 5Y 1.747%, 7Y 1.987%, 10Y 2.171%, 30Y

2.749%.

US TSY FUTURES CLOSE: Broadly higher, at/near late session highs w/long end

outperforming. Continued support coincides with a drop in USD vs. Yen, adding to

the risk-off bid already present. Current futures levels: 

* Sep Ultra bonds up 1-3/32 at 169-03 (167-26L/169-05H) 

* Sep 30-yr Bond futures up 29/32 at 156-16 (155-16L/156-18H) 

* Sep 10-yr futures up 11.5/64 at 126-29.5 (126-16L/126-30H) 

* Sep 5-yr futures up 5.75/32 at 118-20 (118-13.25L/118-20.5H) 

* Sep 2-yr futures up 1.25/32 at 108-08.5 (108-06.75L/108-08.5H)

US EURODLR FUTURES CLOSE: Higher by the bell/late session highs w/long end

outperforming, late flattener trades, 9k Green Dec'19/Blue Dec'20, 0.170 and

seller 10k Mar'18, part of Mar'18/Red Sep'18 flattener, 0.10. Current White pack

(Jun'17-Mar'18): 

* Sep'17 +0.005 at 98.675 

* Dec'17 +0.015 at 98.580 

* Mar'18 +0.020 at 98.510 

* Jun'18 +0.030 at 98.465 

* Red pack (Sep'18-Jun'19) +0.035-0.040 

* Green pack (Sep'19-Jun'20) +0.040-0.045 

* Blue pack (Sep'20-Jun'21) +0.045 

* Gold pack (Sep'21-Jun'22) +0.050

US SWAPS: Spds tighter by the bell, off session lows, spd curve steeper w/short

end leading move all day. Incoming supply helped get things rolling while

sources report decent receiving in 2s-5s earlier, small 2s5s10s spd fly. Modest

rate receiver in short end around midday followed by light receiver unwinds from

fast$ late. OTC vol mixed, longer vega outperforming on the uptick in longer

rates. Latest spread levels: 

* 2Y -1.00/24.81 

* 5Y -0.38/5.50 

* 10Y -0.62/-6.38 

* 30Y -0.62/-35.06

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

- Aug 24 KC Fed 2017 EcoConf: Fostering Dynam. Glb Econ Jackson Hole,WY

- Aug 24 19-Aug wkly initial jobless claims (232K, 235K) 0830ET

- Aug 24 20-Aug Bloomberg comfort index 0945ET

- Aug 24 Jul bldg permits revision (1.223M, --) 1000ET

- Aug 24 Jul existing home sales (5.52M, 5.55M) 1000ET

- Aug 24 18-Aug natural gas stocks w/w (53Bcf, --) 1030ET

- Aug 24 Aug Kansas City Fed Mfg Index (10, --) 1100ET

- Aug 24 US Tsy $14.0B 5Y TIPS reopening auction 1300ET

- Aug 24 23-Aug Fed weekly securities holdings 1630ET

- Kick-off KC Fed 2017 Econ Conf: Fostering Dynam. Glob Econ; Jackson Hole,WY

Eurodollar/Treasury option summary

Eurodollar options,

Blocks:

0737

-5k E3V 78/80 strangles, 15.0 vs. 97.935

0837ET, more in pit

+10k EOU 81p, cab

1356ET

-10k +EDU19 70/71p spds, 3.5

Pit/screen:

+5k EDU 86/E2U 82c spds, 1.0/steepener

-4k EDZ 87c, 0.75

+3.75k EDZ 86/87c spds vs.

-E2Z 85c, 0.5cr

+3k EDH 81/82 2x1p spds, 0.5 vs. 98.51

+10k EDU'18 80/82p spds, 5.75

2.5k EDU'19 62p, 2.0

+15k EOU 81p, cab

15k EOZ 80/81/82p flys, 2.0 vs.

5k EOZ 86c, 2.5

+10k EOV 8c, 2.0

5k EOZ 85/E2Z 83c spds, 1.5/E2Z ovr

+5k EOV 85/86c spds, 1.25

-4k EOU 83/85c spds, 4.5

+2.5k EOZ 80/81/82p trees, 0.5

2.4k EOU 81/85 strangles, 1.5

1k EOM 78/81 3x2p spds, 8.0 vs. 98.20

+5k E2V/E2X 80p spds, 2.0

4k E2Z 87c, 1.5 vs. 98.17/0.10%

+4k E2V 80/81 2x1p spds, 1.0

2k E2U 81c, 11.5

+2k E2H 81 straddles, 38.5

1k E2M 76/80 3x2p spds, 16.5

Tsy options

Pit/screen:

+30k TYZ 114+p, cab-7

4.6k TYZ 129c, 19

3.3k TYZ 129c, 20

+3k TYX 127/129/131c flys, 22/ongoing buy

3k TYV 126/127c spds, 32

2.5k TYU 126.7/127 1x2c spds, 1

2k TYV 128c, 9 vs.

1.67k TYV 132c, 1

1.5k TYU 126+ straddles, 108

1.5k TYU 127c, 8

1k TYX 126.5/129c spds, 42

1k TYU 126+/127+ straddle spds, 5

2k wk2 TY 127.2c vs. TYU 127c, 3

+96k FVZ 112.2p, cab-7

FOB synthetic bull flattener:

-5.2k FVZ 119.2c, 14.5 vs.

+1.3k USZ 160c, 55-104

10k TUZ 107.8/108.1/108.3 1x1x1p flys, 1.5

3k TUV/TUZ 108.1p spds, 5.5

1.6k TUX/TUZ 107.8p spds, 1.5

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

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