Gilts are set to close sharply.........>

GILT SUMMARY: Gilts are set to close sharply higher thanks to the dovish

interpretation of the minutes of the MPC meeting and Quarterly inflation report

that showed a cut in both GDP and wage growth.

- 2-yr Gilt yield is -4.9bp at 0.230%, 5-yr -6.5bp at 0.541%, 10-yr -7.5bp at

1.161% and 30-yr -5.9bp at 1.806% according to Tradeweb. 

- Gilts were just treading water ahead of the BoE announcement with the slightly

higher than expected UK service PMI not really impacting markets too much. The

report highlighted activity picked up only slightly from 4-month low and

business optimism remained subdued.

- Sep Gilt future spiked higher in knee-jerk reaction to BoE decision to leave

rates unchanged with a 6-2 vote, avoiding fears of a tighter 5-3 vote, and with

cut in GDP and wage growth seen outweighing MPC comment that policy may need

tightening more than markets currently expect. BOE Governor Carney then sounded

neutral to dovish in press conference -- sluggish growth, consequences of Brexit

vote are starting to build. Soft US data then gave Gilts another boost higher.

- Breakevens are circa 1.5bp tighter, while swap spreads are steady to 1bp wider