Gilts are trading steady to lower......>

GILT SUMMARY: Gilts are trading steady to lower with the yield curve bear

flattening as UK inflation surprises to the upside and remains sticky in

January, reversing earlier moves higher.

- 2-yr Gilt yield is +1bp at 0.696%, 5-yr +0.6bp at 1.094%, 10-yr -0.3bp at

1.599%, 30-yr -0.4bp at 1.978% and 50-yr steady at 1.763%.

- Short-end of Gilts reversed gains and dipped lower in reaction to 3.0% y/y UK

Jan CPI as markets looked to have priced in a 2.9% y/y print as breakevens

tightened ahead of data release. Core CPI rising to 2.7% y/y from 2.5% y/y and

above expectations for a 2.6% y/y outcome also weighed on Gilts and supported

bid in Sterling.

- Short sterling also reversed mild gains, while MNI PINCH saw chance of a May

rate hike inch higher to 75% from 73.5%, as data underlined BoE fears of

inflation remaining higher for longer.

- 30-yr breakevens tightened by over 1bp before CPI release but is now trading

0.8bp wider after reacting to the inflation numbers. Swaps spreads have seen

very little movement so far today.