Gilts looking set to close sharply.....>

GILT SUMMARY: Gilts looking set to close sharply lower, with the yield curve

bear flattening as the short-end comes under greater pressure following step-up

in hawkish rhetoric from the Bank of England. 2-/30-year spread is 2bp steeper.

- 2-yr Gilt yield is +7.1bp at 0.363%, 5-yr +8bp at 0.638%, 10-yr +6.8bp at

1.216% and 30-yr +4.9bp at 1.853% according to Tradeweb.

- Markets now calculating a 50/50 chance of a 25bp rate hike at next BOE MPC

meeting in November as it says "majority of MPC members felt some withdrawal of

stimulus would be appropriate in the "coming months" if the economy followed a

path consistent with the continued erosion of slack and a gradual rise in

underlying inflationary pressure."

- This heavily outweighed the fact the MPC voted 7-2 to keep rates unchanged in

August (market was increasingly pricing risk of a 6-3 vote) and pushed yields,

especially the 2-/5-year area, and Sterling sharply higher.

- Large selling was also seen in back end of White and across Red short sterling

future contracts, with volumes 4x above 30-day average.

- Swap spreads are little changed, however breakevens are a touch wider.