Gilts looked to close modestly.........>

GILT SUMMARY: Gilts looked to close modestly lower, but well off session lows as

they take cue from rally in US Treasuries in afternoon session ahead of FOMC

monetary policy decision and statement. 2s/10s part of the curve has steepened

by 0.7bps, but 10-yr and above is little changed.

- 2-yr Gilt yield is +2.9bp at 0.807%, 5-yr +3.3bp at 1.139%, 10-yr +3.8bp at

1.443%, 30-yr +3.9bp at 1.859% and 50-yr +3.7bp at 1.663% according to TradeWeb.

- June gilt future hit session low just before midday as UK construction PMI

rose to 52.5 in April from 47.0 in March and sharply above consensus of 50.5 and

Sterling gained a bid vs the Euro and Dollar, despite growing pressure on Tory

government to decide its Brexit position.

- Gilts bounced off session lows supported by recovery and then rally in US Tsys

in the afternoon, however 10-yr Tsy/Gilt spread has unperformed by 4bp.

- Short sterling strip has been under pressure for majority of the day with

markets pricing slightly higher chance of a rate hike in August. White contracts

are -1 to -2 ticks, reds -2 to -4 ticks and green & blues -3 to -4 ticks.

- Swap spreads now little changed on day while breakevens are circa 1bp wider