Gilts are trading higher but with......>

GILT SUMMARY: Gilts are trading higher but with the yield curve steepening as

the short-end outperforms following surprise fall in UK inflation. Prices are

off best levels however as markets look to have over reacted to the CPI data and

analysts still expect BoE to raise rates in May.

- 2-yr Gilt yield is -4.6bp at 0.849%, 5-yr -4.5bp at 1.14%, 10-yr -3.0bp at

1.416%, 30-yr -0.9bp at 1.818% and 50-yr -0.8bp at 1.634% according to Tradeweb.

- 2-yr Gilt yield hit low of 0.806% in reaction to UK inflation surprising to

the downside and falling to 2.5% y/y from 2.7%, while core fell by 0.1% to 2.3%

y/y. PPI data was a little more in-line though still showing input and out

prices rising steadily. 

- Gilts have given up some of those gains though, as markets expect the BoE to

remain focused on the continued low unemployment level and first signs of a rise

in wage growth which could lead to rise in domestic price pressures.

- As expected breakevens have tightened with the 5-yr seeing the largest move

and narrowing by 5bps, while 10's is down 2bps. Swaps spreads are touch wider.