Gilts rallied sharply in London........>

GILT SUMMARY: Gilts rallied sharply in London afternoon session underpinned by

risk-off flows with the 10-yr yield hitting a low of 1.298% the lowest level

since Jan 17. The yield curve has pivoted around the 10-yr sector as 2-yr and

30-yr lag a little. 10-yr Gilt last at 1.318%, 2s/10s -2.4bp, 10s/30s +0.9bp

- Spain decided to rack up the political tension in Europe with the opposition

calling for a confidence vote on Rajoy's government. Aided by already heightened

concerns in Italy led to a sharp flight-to-quality bid in Bunds and Gilts this

afternoon. A Statement from Rajoy that he will see out his term stopped the

rout, however markets remained bid going into Friday's close.

- Markets were also supported by a Reuters ECB sources story that said a near

"unison" of GC members agree on ending QE this year despite recent political

concerns in Italy.

- Short sterling strip has bull flattened as green and blue contracts rise by 7

to 8 ticks while whites ate 1 to 4 ticks higher.

- Breakevens are 1 to 2.5bp tighter led by the long-end, while sap spreads are

sharply wider led with 10-yr 2.3bp wider.