US TSYS ZIGZAG AROUND AMID TWO-WAY FLOWS; HIGHER 3% 3Q GDP

     US TSYS SUMMARY: Treasuries opened NY mildly lower, 30Y higher after

overnight two-way flows and mixed influences. Tsys then zigzagged lower on 3% 3Q

GDP.

- TOKYO: Tsys stayed in range after brief spike upward 3 hours into trading day

(unknown driver) then quickly fell back to lower range ahead of UK opening.

Two-way flows had post-auction short-covering and also position squaring into

the weekend. Fast money and macro funds sold Tsys, and other mild buying cited

in 30Y bonds. Asian stocks gained; Nikkei rose 1.25%. ASX 200 dipped: Australia

Dep PM Joyce lost his court citizenship case, thus loses 1-seat majority. Fed

chr contender Taylor spoke in Wisconsin with remarks likely close to Trump

views. 

- LONDON: Tsys softer to midmorning, then tracked German Bunds up on

Spain/Catalan tension risk-off bid. Tsys saw US asset mgr buying 5Y, 10Y. Fast

money sold 10Y. Politico source said only Powell, Taylor still in Fed chr race. 

- US SWAPS: Mildly tighter, o/night receiving in 5Y, 10Y. 

- US EURODLRS: Wings steady, Red/Blues (EDZ8/EDU1) softer. 

- OVERNIGHT REPO: Tsy 5Y note, old 2Y, old 3Y tight.

     US DATA: 3Q adv GDP +3.0% vs +2.7% expected and down only slightly from

3.1% in 2Q, while GDP price index +2.2% vs +1.8% expected and +1.0% 2Q. The core

PCE price index was +1.3% in 3Q after +0.9% in 2Q, for year/year rates of +1.3%

3Q vs +1.5% 2Q. 

- The BEA acknowledged the destruction from the hurricanes, but said it could

not quantify the overall impact on the GDP data. Components for 3Q showed

positive contributions from PCE (+1.62pp), inventories (+0.73pp), nonresidential

fixed investment (+0.49), and net exports (+0.41pp) that were offset by negative

contributions from residential investment (-0.24pp) and government spending

(-0.02 pp). Real final sales +2.3% vs +2.9% in 2Q. See MNI main wire.

EGB SUMMARY: The 10Y Bund kept its upward pace this morning and is currently

trading near session highs of 162.23, which is the precise point at which there

is technical resistance(1.618 swing of 162.00-161.63. The move higher appears to

be on the back of rising tensions in Catalonia and the dovish comments by ECB

President Draghi yesterday.

- Also Bunds aided as Catalan situation is getting increasingly complicated as

Spanish PM Rajoy requests the Senate allowing him to dismiss Catalonia`s

President. While the Catalan Parliament is scheduled to vote on independence

declaration at 1315 local time. However, recent headlines suggests that the

socialists will not participate in the Catalonia session vote. The Bund-Bonos

spread has widened significantly to 115.0 increasing by 3bp. 

- The current widening in Spain so far has not impacted other peripheral

markets. 

- According to market sources the 2`s/10`s flatteners that were put on earlier

during the week are getting taken off. 

- 10Y German Bund yield is up 0.7bpss at 0.418% at 8:58am ET. vs. 0.405% at

6:47am ET.

GILT SUMMARY: Gilts traded firmer after mkt rallied strongly about half-an-hour

after opening on the back of rising tension between Spain and Catalonia

governments and have pretty much remained close to session highs ever since. The

yield curve is flattening as long-end outperforms.

- 10-yr yield was -0.3 bps at 1.379% at 8:59am ET. 

- Gilts initially opened little changed as markets turned their attention to

next weeks BoE MPC meeting, were they are expected to raise rates for the first

time in over 10-years. Headlines coming out of Spain though quickly led to

flight-to-quality bid as first Catalonia said it was sending an urgent mission

to Madrid to plead for a deal, only for another headline to say that the

Catalonia parliament is being asked to vote on a independence declaration. The

vote is expected to be taken at 1315 local time newswires report. 

- A Dec Gilt future block buy at 124.16 also supported bid in Gilts. 

- Breakevens are trading 1.1bp to 1.9bp tighter, curve flattening, while swap

spreads are once again mixed with the ultra long-end around 1.1bp wider.

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

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