Gilts looked set to close sharply......>

GILT SUMMARY: Gilts looked set to close sharply lower and were trading near to

session lows, before abruptly paring losses following shock announcement that

Foreign Secretary Boris Johnson has resigned, taking the number of Cabinet

ministers to have quit in last 24 hours to 2.

- 10-yr Gilt yield is currently 2.4bp higher at 1.285% vs intra-day high of

1.314%, according to Tradeweb, and is leading the rest of the curve higher.

2s/10s is 2.9bp steeper while 10s/30s is 1.1bp flatter.

- Earlier Gilts steadily moved lower weighed by muted reaction to overnight news

that Brexit Secretary David Davis resigned, as initial thinking that any damage

to PM May was limited and contained. EGB Bond supply and general risk-on tone

also seen weighing.

- However sentiment turned as newswires reported that PM May had accepted

Johnson's resignation which puts her position as PM under threat.

- White short sterling contracts reversed gains and are steady to 2 ticks higher

while blues remain 3 ticks lower on the day. Swap spreads remain modestly

tighter, but breakevens are now mixed with 30-yr 0.5bp wider.