Gilts are trading modestly lower,......>

GILT SUMMARY: Gilts are trading modestly lower, however the front end is

underperforming and therefore bear flattening the yield curve despite

disappointing 20-year Gilt re-opening auction as industrial production surprises

to the upside.

- 2-yr Gilt yield is +2.3bp at 0.447%, 5-yr +2.3bp at 0.780%, 10-yr +1.7bp at

1.37% and 30-yr +1.1bp at 1.957% according to Tradeweb.

- Gilts opened lower, but slowing pared losses taking cue from recovery in

German Bunds. Dec Gilt future held near top of days range following mixed data

as IP showed large upward revisions thanks to robust manufacturing and

construction surprise to the upside as well. Net trade deficit widen sharply,

however, which is likely to exert a negative force on Q3 GDP.

- The future dropped sharply and ticked to fresh intra-day low though, as

20-year Gilt re-opening auction tailed badly (0.4bp vs 0.2bp) which lead to a

block sell in G Z7 for 1k, and a number of basis trades.

- Swap spreads and 5-yr and 10-yr breakevens are little changed, but 30-yr

breakevens are 1bp wider at 3.485%.