Despite a stormy cabinet session, UK...>

GILT SUMMARY: Despite a stormy cabinet session, UK PM Theresa May appeared to

receive a warmer response from the packed out 1922 committee meeting, reducing

the risk of a near-term leadership challenge. Gilts seem to be caught up in the

broader fixed income sell off.

- The short end of the gilt curve has sold off while the longer end has traded

sideways. The 2-year benchmark trades at a yield of 0.747% up from a low of

0.733% while the 10-year has held within a 1.441/1.457% range.

- The curve has flattened with the 2s10s spread narrowing to 69.5bps from

71.2bps.

- The Dec gilt future trades at 122.26, in the middle of the day's range.

- The short sterling futures strip is broadly flat on the day. The most

significant option flow to cross the screen was: 10k Sep19 98.50/98.25 1x2 put

spread trades sold for 0.5.

- Inflation breakevens have inched higher, with overall movement fairly limited.

- Cable selling has dissipated today, but pressure remains to the downside.