Gilts initially squeezed higher in.....>

GILT SUMMARY: Gilts initially squeezed higher in London afternoon trade but then

pared those gains taking cue from fade in US Tsys following upbeat US data and

pricing of new 10-yr Irish deal, but remain sharply higher on the day. Curve is

now bull flattening as ultra long-end outperforms.

- 2-yr Gilt yield is 2.5bp at 0.476%, 5-yr -4.9bp at 0.745%, 10-yr -6.2bp at

1.225%, 30-yr -6.2bp at 1.779% and 50-yr -6.6bp at 1.585%.

- March Gilt future actually opened lower before quickly reversing higher as

markets looked to cover short positions following Tuesdays sharp sell-off. There

was initially little reaction to soft UK construction PMI data however block buy

in G H8 at 124.39 in 3k led to renewed rally in Gilts breaking through hourly

resistance level at 124.58/64.

- In the afternoon, Gilts extended gains, as US Tsy caught the buying bug, but

then faded the move after rise in US ISM manufacturing and pricing of E4bln of a

new 10-yr Irish bond.

- 2-yr swap spreads gave up some of its large tightening move seen yesterday and

are 3.5bp wider, while 10-yr and 30-yr breakevens are circa 0.5bp tighter.