Gilts have seen some heaving selling...>

GILT SUMMARY: Gilts have seen some heaving selling in London afternoon trade and

look set to close near session lows, weighed by the rise in cable above $1.42

level, large Gilt block sell and upbeat UK labour market data.

- Gilt future has led the sell-off leading to the 10-yr part of the yield curve

underperforming with 2s/10s yield spread 3.6bp steeper at 82bps, while 10s/30s

is 1.9bp flatter at 47.8bps with 10-yr yield +6.8bp at 1.421%.

- Gilts opened on the soft side weighed by overnight move higher in cable, rise

in Japanese manufacturing PMI, 3rd consecutive increase and near a 4-yr high.

- Gilts dropped lower before release of UK labour market data, likely on the

back of a 2.55k block in G H8, and then hit fresh session lows in reaction to

surprise rise AWE ex bonus and rise in the number of employed during November,

reversing last 2-months of declines. Data also pushed cable above $1.41 level.

There was a 2nd Gilt future block in the afternoon of 2,751 G H8 @ 123.26

- Sterling has also gained against the Euro and this has led to UK 5-yr

breakeven rate to tighten by 2bp to 2.94% and 10-yr by 1.2bp to 3.12%. While

swap spreads are mixed with 2-yr 2bp tighter and ultra long-end 1.4bp wider.