Gilts look set to close modestly.......>

GILT SUMMARY: Gilts look set to close modestly higher, yield curve flatter, as

disappointing industrial production data and warning from EU Chief Brexit

negotiator Michel Barnier on transitional deal, support bid in Gilts. Prices are

off session highs though as US equites bounce higher.

- 2-yr Gilt yield is -1.8bp at 0.665%, 5-yr -3.0bp at 1.064%, 10-yr -3.8bp at

1.579%, 30-yr -3.8bp at 1.955% and 50-yr -3.0bp at 1.735%

- IP fell 1.3% in December, more than the -0.9% m/m expected, dampened by a

plunge in North Sea oil production and outweighing a decent return in

manufacturing and rise in construction output. While the UK's trade gap widened

sharply in final 3-months of 2017, which is set to weigh on GDP.

- Gilts rose to session highs following Barnier comments that there would be no

transitional deal if disagreements continue and that the UK had to accept all EU

terms during the period. But some of those gains were given up as US equities

open higher.

- Surprisingly, despite the fall in Sterling, UK breakevens are tighter by

around 3bps across the curve, while swap spreads are 1-2bp wider.