A combination of risk-on sentiment.....>

GILT SUMMARY: A combination of risk-on sentiment flows, continued mantra of

gradual rate hikes from the FOMC and better than expected UK service PMI has led

Gilts to sell-off sharply especially in the 2-yr to 10-yr area bear flattening

the curve.

- 2-yr Gilt yield is +3.4bp at 0.502%, 5-yr +3.0bp at 0.765%, 10-yr +3.2bp at

1.245%, 30-yr +2.1bp at 1.789% and 50-yr +1.7bp at 1.591%.

- Gilts were lower from the get-go, weighed by risk-on flows overnight as Asian

stocks rallied and oil continued to tick higher. While FOMC meeting minutes

showed Fed was still on a path of gradual rate hikes.

- March Gilt future then spiked to session low of 124.50, probably on the back

of a sell block in G H8 at 124.55 for 1.5k, before recovering by 15 ticks.

- There was further selling in wake of higher than expected rise in UK service

PMI to 54.2 in Dec from 53.8 in Nov. Overall, the PMI data pointed to a marginal

uptick in the economy with avg composite PMI for Q4 above Q3.

- Breakevens are between 1.3-2.6bp wider led by the 5-yr, while swap spreads are

mixed with 2-yr 1.9bp tighter and 15-yr and above modestly wider.