Gilts are trading modestly higher,.....>

GILT SUMMARY: Gilts are trading modestly higher, yield curve flatter as

long/ultra long-end holds onto mild gains but short-end pares earlier move

higher in wake of steady inflation data.

- 2-yr Gilt yield is -0.7bp at 0.738%, 5-yr -1.3bp at 1.083%, 10-yr -1.4bp at

1.378%, 30-yr -2.3bp at 1.819% & 50-yr -2.8bp at 1.643% according to Tradeweb.

- UK Sep Gilt future was little changed heading into release of UK May inflation

data, but then spiked to intra-day high of 122.15 on light relief rally as

headline CPI remained steady at 2.4% y/y and core at 2.1% y/y. 

- 10-yr Gilt yield hit low of 1.358% before bouncing higher, weighed by sharp

sell-off in German Bunds as Italy manages to sell BTPs and German 10-yr Tap

auction comes in technically uncovered.

- Volumes have been thin though with markets eyeing 3 central bank meetings in

next 3-days, starting with FOMC tonight. With a 25bp Fed rate hike priced in

attention is on IOER, statement and updated projections.

- Short sterling strip has pared earlier CPI induced move higher/flatter but it

has not changed markets view of possible rate hike in August (52% -- MNI PINCH).