Gilts continued to pare earlier........>

GILT SUMMARY: Gilts continued to pare earlier sharp gains in London afternoon

trade as volatility in BTPs dropped and Sterling bounced off lows vs US Dollar.

The 10-yr Gilt remains the best performer on the curve with 2s/10s 2.3bp flatter

while 10s/30s is 2.8bp steeper.

- 2-yr Gilt yield is -4.2bp at 0.653%, 5-yr -5bp at 0.985%, 10-yr -6.5bp at

1.259%, 30-yr -3.5bp at 1.735% & 50-yr -2.8bp at 1.551% according to Tradeweb.

- 10-yr Gilt yield dropped to a low of 1.103% shortly after 0930BST, after that

is was pretty much downhill all the as markets looked to overreacted to turmoil

in Italian politics.

- There was no outright catalyst for the sudden reversal in Gilts, however,

comments from ECB Visco that there are no reason for volatility in markets and a

covered BOT auction supported recovery in BTPs.

- Short sterling strip has retained its bull flattened move but is well off

session best levels with green and blue contracts 6 to 8 ticks higher. This has

led markets to push out next BoE rate hike to Feb 2019 from Nov.

- Breakevens are 0.5-2bp tighter while swap spreads are mixed with 10-yr +2.5bp.