Gilts also have recovered from an......>

GILT SUMMARY: Gilts also have recovered from an afternoon sell-off that was

triggered by German Bunds and US Treasuries and look set to close modestly

higher but with the yield curve bull steepening as short-end outperforms.

- 2-yr Gilt yield -2.1bp at 0.559%, 5-yr -1.0bp at 0.828%, 10-yr -0.5bp at

1.298%, 30-yr -0.6bp at 1.807% & 50-yr -0.6bp at 1.595%.

- There was little to no reaction to BoE MPC member Michal Saunders comments

that a further rate hike would not be restrictive and wage growth may pick up to

3% this year, but countered that by saying equilibrium jobless rate is slightly

below 4.5% and Brexit could push BoE policy in either direction.

- Overall UK markets are lacking real direction with dearth of UK data and a

temporary lull in domestic political risks, while next BoE MPC meeting is not

until Feb 8.

- 5-yr and 10-yr breakevens are around 1bp tighter while swap spreads are mixed

with the 2-yr 4bp wider at 31.4bps, but the reset modestly tighter

- Looking ahead to tomorrow DMO taps its 5-yr Gilt for Stg2.5bln