Gilts have recovered from lower........>

GILT SUMMARY: Gilts have recovered from lower opening and are currently treading

mixed with yield curve steepening with short-end seen supported by larger than

expected fall in UK retail sales and fears of a US government shutdown.

- 2-yr Gilt yield -1.3bp at 0.568%, 5-yr -1.0bp at 0.849%, 10-yr -0.1bp at

1.329%, 30-yr +1.0bp at 1.841% & 50-yr +1.4bp at 1.626%.

- Gilts opened sharply lower weighed by overnight rise in US Treasury yields on

fears of US government shutdown, however, quickly pared losses more than likely

helped by large Gilt future block (5,907 G H8 @ 123.57 at 0926:22GMT). Recovery

also linked to risks UK retail sales would come in weaker than expected.

- Retail sales duly disappointed to the downside contracting 1.5% in December

and Gilts spiked to fresh session high and supported rally in the short-end of

the curve. Sales for Q4 though were up 0.4% overall compared to Q3, albeit at a

slower pace, and should be net positive to Q4 GDP

- There has not been much movement in either UK swap spreads and breakevens with

the exception of 30-yr breakevens which are 1bp tighter.