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

GILT SUMMARY: Gilts are set to close sharply higher with the yield on the

10-year hovering around 1.00% just over 5bps lower on the day, as market traded

with a risk-off tone. Prices are off session best levels however, as US and

European stock markets bounce off lows.

- The curve has pivoted slightly with 2s/10s spread 3.7bp flatter while 10s/30s

is 1bp steeper.

- Gilts opened sharply higher as markets played catch up following August Bank

Holiday and in reaction to overnight news of N.Korea firing a missile over

Japan, which led to risk-off flows.

- Markets also digested start of third round of Brexit negotiations in Brussels,

which have got off to a rather tense start with EU's Barnier warning the UK that

it needed to start negotiating "seriously". While UK's Davies called on the EU

to "show flexibility and imagination".

- Swap spreads are trading marginally wider with the exception of the 5-yr which

is 0.5bp tighter. While breakevens have reversed earlier tightening move and are

now in the region of 1.5bp wider.