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

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

outperforms the short-end, having reversed earlier weakness in wake of risk-off

flows as Italy BTPS come under heavy selling pressure and European equities drop

over 1%.

- 2-yr Gilt yield is -0.8bp at 0.794%, 5-yr -0.4bp at 1.110%, 10-yr-1.3bp at

1.379%, 30-yr -1.6bp at 1.80% & 50-yr -1.7bp at 1.637% according to Tradeweb.

- Gilts initially opened mixed with the short-end edging lower weighed by

slightly hawkish tone of FOMC statement and BoE rate decision later, while the

10-yr and above sector edged higher and in-turn flattening the yield curve.

- Gilts drifted lower weighed by upcoming supply from Spain and France, however,

started to recover lost ground despite large rise in UK construction PMI data

and soft French OAT auctions. Gilt future then hit fresh session high of 122.28

on risk-off flows as BTPS sold off sharply and equities extended losses.

- There has been huge volume in Sep8 Sstg contract with ~200k seen going through

screens with the majority traded at 99.135. Red contracts have also seen decent

volumes as markets position ahead of key BoE monetary policy decision