Gilts got hit hard at the open,........>

GILT SUMMARY: Gilts got hit hard at the open, especially the 10-yr sector, on

future led selling as markets woke up to a slightly more hawkish Fed that upped

its inflation outlook modestly and pretty much confirmed a rate hike is on the

cards at the next FOMC meeting in March.

- Gilts did attempt at a recovery following weaker than expected UK January

manufacturing PMI (55.3 vs 56.2 in Dec), however, quickly reversed tract as IHS

Markit/CIPS report showed purchase prices rising at fastest rate in 11-months

and output charges rose at steepest level since April 2017.

- 10-yr sector remains the worst performer on the curve with yield 3.0bp higher

at 1.54% after hitting 1.55% and highest level since May 4, 2016. 2s/10s yield

spread is 2.6bp steeper, while 10s/30s is 1.7bp tighter.

- Breakevens have reversed their earlier widening move and are now steady to

slightly tighter. While swap spreads are little changed with the exception of

the 2-yr which is 1.8bp lower at 24.7bps and narrowest seen Sep 2016

- With only UK construction and service PMI released over the next couple of

days, markets attention is slowly turning to BoE Super Thursday on Feb 8