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

GILT SUMMARY: Gilts are trading modestly lower, led by 2-yr to 5-yr sector and

in-turn bear flattening the yield curve, weighed by stronger than expected UK

service PMI data for June. 2s/30s yield spread is 0.95bp tighter. 

- 2-yr Gilt yield is +3.2bp at 0.729%, 5-yr +3.1bp at 1.016%, 10-yr +2.3bp at

1.267%, 30-yr +2.0bp at 1.724% & 50-yr +2.1bp at 1.575% according to tradeweb

- Gilts opened lower, taking cue from opening fall in German Bunds on better

than expected China Caixin and Japan Nikkei service PMI's. Gilts managed  to

recover lost ground before release of UK service PMI.

- Sep Gilt future dropped sharply and eventually fresh session lows in knee-jerk

reaction to UK service PMI rising to 55.1 in June from May's 54.0. This helped

the overall PMI to rise to an 8-month high and increase the chances of the BoE

hiking rates at its next MPC meeting in August, which weighed more the the

short-end of the Gilt curve.

- Chance of a rate hike in August has risen to 71.5% from 64% seen just before

the PMI data according to MNI PINCH, while Sterling futures are 2 to 3 ticks

lower. Both breakevens and swap spreads are little changed.