Gilts extended gains in wake of less...>

GILT SUMMARY: Gilts extended gains in wake of less hawkish tone of Bank of

England monetary policy statement and May inflation report and following soft US

inflation data. The curve has bull steepened though as short-end gained most

from the BoE announcement while the ultra-long-end lagged.

- 2-yr Gilt yield is -5.4bp at 0.767%, 5-yr -6.1bp at 1.111%, 10-yr -5.1bp at

1.415%, 30-yr -2.6bp at 1.848% and 50-yr -1.8bp at 1.47% according to Tradeweb.

- BoE MPC voted 7-2 to leave rates unchanged at 0.50% as widely expected by

markets, however the tone of the minutes and inflation report was less hawkish

than expected as inflation forecast was nudged lower due to a lower pass through

from sterling's post Brexit vote depreciation.

- Carney was keen to stress that the low Q1 GDP was likely to be temporary due

to impact of the cold snap, highlighting that further tightening is likely to be

only postponed, not cancelled.

- Indeed markets lowered chance of a rate hike in Aug but left Nov little

changed. Short Sterling strip is 4.5 to 7 ticks higher/flatter, while breakevens

have pared/reversed earlier widening move and swap spreads are little changed.