COMMENTS

EUR SWAPS
Another fairly quiet day, with curve steepening from the front end, key flow
of the afternoon was one US name receiving in 4bn 1y1y fwd swap, this was
relatively well absorbed by the mkt, but aided 2-10's on its 4bps steepening
on the day. Flows in long end of curve light with 10-30's broadly unch on
the day & 30yr spreads pushing wider by 1bps. 

GBP
Curves disinverting in both gilts & swaps led by the long end on various
stories in the mkt, most mentioned is maybe the potential for reforms of
annuities, while rumours have been around for a long time, word is building
that in the pre budget report there may be a plan to get rid of this. This
might also explain the delay of the 2025's tap until the week after the
report. Swap spreads broadly unchanged, 10-30's swaps disinverted 3.5bps,
with 2-10's swaps unch. UK swap spreads are also increasingly becoming a
topic for discussion at these lvls, while we do feel we are starting to
reach a support lvl in long end swap spreads, we dont see these levels as an
obvious widening opportunity. Generally we do feel that further downside
over the coming months in 30yr spreads is probably limited to maybe 5bps or
so, and on that basis, it is worth keeping an eye on these and maybe looking
to start averaging in soon, but its not clear that the narrowing flows of
the last few months are definitely over for the year & while offside risk
already in the trade is not significant compared to other flows in the mkt,
its certainly out there potentially making this a little crowded going fwd.


DKK
The Danish election yesterday saw the largest swing since 1968 and reduced
the ruling Social Democrats to the second largest party only for the first
time in 75 years. The new prime minister will be the leader of the Liberals,
Anders Fogh Rasmussen. Together with the Conservatives, the Liberals will
begin the work of forming a new government. But this is likely to be a
fragile minority government, dependent on shifting coalition partners. The
Liberals had hoped to count on the support of the EU-friendly
Centre-Democrats but the latter failed to pass the 2% threshold for
parliamentary representation. Instead, the right wing Danish Peoples Party
emerged to become the third largest party - doubling its mandate.  Fogh
Rasmussen is going to have a tough job in conquering the middle ground.
General elections in Denmark do not ignite much market reaction & this is
unlikely to change this time around as the general thrust of the economic
policies will not change much, especially on EMU. 

JPY
Bumpy day in Japan, with profit taking by domestics pre auction, then better
buying 7-10yr paper, as the new 235's, 1.4% coupon, 1.7trln in size, came at
pretty expensive lvls with good customer buying 100.78 ave px, 100.75 low,
100.60/65 area fair value.  FOllowing the auction S&P announced Japan
downgrade, futures crashed half a point, but mkt bounced back on buying and
7-10's flattened 1.5bps, helped by a strong domestic receiver in 7-10's.
Going forward, we see the downgrade impact as pretty limited. Head of S&P
Japan commented there is higher possibility of further downgrade from AA
(compare to the time they downgraded from AAA to AA in Feb 01)

LEVELS (close to close, ex basis)

SWAP CURVE
GBP/EUR(EUR convention)
	      today 	  t-1
5y5y		 -22		 -22 
15y15y	 -140		 -147
10/30?	 -35.5	 -39.0
10/30E       +45.7	 +45.5	 

EUR SWAP SPREADS
5y:  Bobl 138	27.0  1.0 wider
10y: Jan 11 bund	34.4  0.6 wider
30y: Jan 31 bund	23.1	1.0 wider

EUR SWAP VOLATILITY
3m into 10yr	14.5 	0.2 higher
1y into 10yr	13.1 	0.2 higher
2y into 10y		12.6 	0.2 higher
5y into 5y		12.5	0.3 higher
5y into 25y		10.5	0.2 higher	
10y into 20y	9.9	0.2 higher
5y5y swaption/5x10 cap spread	2.5

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