Gilts extended rally and curve.........>

GILT SUMMARY: Gilts extended rally and curve flattening move in London afternoon

trading, helped by strong bid in USTs possibly on the back of slight rise in

geo-political tension in Asia and some month/quarter year end rebalancing.

- 2-yr Gilt yield is -3.1bp at 0.419%, 5-yr -3.9bp at 0.708%, 10-yr -6bp at

1.181%, 30-yr -5.2bp at 1.768% and 50-yr -4.7bp at 1.586%.

- Gilt future actually opened a few ticks lower than Friday's settlement price,

however very quickly reversed losses and squeezed higher. Volume was very low

though with only 10k contracts being traded in first hour of trade.

- Markets talk of small rise in geo-political risk following new US sanctions on

North Korea. While sharp rise in oil price due to pipeline explosion in Libya

and continued rise in copper raised inflation concerns and possible quicker Fed

rate hikes for 2018, weighed on short-end of curve.

- Early indications from UK retail over Christmas showed sharp fall in people

visiting shopping centres and the high street.

- Breakevens tightened in the afternoon, while 2yr and 10-yr swap spreads are

2.3bp & 1.5bp wider respectively.